Chapter 9 Flashcards
(13 cards)
What are Multinational Enterprises (MNEs)?
- They operate in multiple host countries with foreign operations
- Directed from a central planning hub, often far from host operations
- High traio of foreign sales to total sales
Types of MNEs integration:
-Vertical = different stages of production
-Horizontal = same product in new locations
-Conglomerate = new, unrelated industries abroad
Define foreign direct investment (FDI):
FDI is when a company invests in and controls a foreign business, often by owning it, building it, or funding its growth
What are the motives for FDI?
- Demand factors: Access new markets, cicumvent limits of expoirting, respond to market competition
- Cost factors: Lower labor and production costs, secure essential raw materials, reduce transportation and tariff costs
What are the welfare effects of joint ventures?
Gains:
- Cost savings, better market penetration, more competition, and innovation
Losses:
- Reduced competition due to collusion, potential for price increases
What are the positives and negatives of MNEs in host countries
Positive: Employment rises if new plants are built
Neutral/ negative: no effect if acquiring existing firms
What are the concerns or potential gains of MNEs in source countries?
Concerns: Offshoring and “runway jobs”, weakening union influence
Potential gains: Foreign sales may boost domestic jobs over time
What are national sovereignty issues?
- Fear that MNEs may dominate domestic policy and undermine sovereignty
- May evade taxes or operate against national interests
What are the benefits of immigration?
- Economic diversification
- Lower consumer prices
- Expanded domestic production capabilities
- Boost to labor force and tax base
What are the domestic politics of immigration?
- Labor groups often oppose immigration (job competition)
- Employers favor it for the labor supply
- Long-term net fiscal contributions from immigrants are positive
What is some previous US immigration legislation?
- 1921 Quota Law: restricted immigrants by origin
- 1965 amendments: removed country quotas, capped overall numbers
- 1996 reform: tougher rules for illegal immigration
What is trade as a substitute for migration according to the Heckscher-Ohlin theory?
-Countries that reflect their abundant resources (labor, capital)
-embodies labor/capital across borders without physical movement
What are the controversies around MNE behavior?
- Influence on domestic politics and laws
- Potential tax avoidance
- disruption to domestic labor markets
