Chapter 22: International Production and Development
MULTIPLE CHOICE
1. Which of the following is not an employment benefit of FDI in a host country?
a. Transfer of existing jobs from local to foreign firms.
b. Increase of total number of jobs in a sector.
c. Use of local suppliers by the foreign firm.
d. Increase in training.
2. Which of the following is not an ownership requirement imposed by a host country on a
foreign investment project?
a. A limitation on foreign equity participation in the project.
b. A requirement that the project be a joint venture.
c. Requirement that the foreign firm hire local managers.
d. None of the above.
3. Which of the following is not a performance requirement imposed by a host country on a
foreign investment project?
a. A minimum local content requirement.
b. A requirement that a foreign firm transfer technology to the host country.
c. A requirement that the project export part of its production from the host country.
d. A limitation on foreign equity participation.
4. Which of the following Trade-Related Investment Measures (TRIMs) is prohibited under
the WTO?
a. Export performance requirements.
b. Local content requirements.
c. Technology transfer requirements.
d. Remittance restrictions.
5. Which of the following Trade-Related Investment Measures (TRIMs) is prohibited under
the WTO?
a. Trade balancing requirement.
b. Local equity requirement.
c. Licensing requirement.
d. Restriction of access to foreign exchange.
6. Which of the following Trade-Related Investment Measures (TRIMs) is not prohibited
under the WTO?
a. Export performance requirement.
b. Trade balancing requirement.
c. Local content requirement.
d. Domestic sales requirement.
7. Which of the following Trade-Related Investment Measures (TRIMs) is not prohibited
under the WTO?
a. Export performance requirements.
b. Technology transfer requirements.
c. Remittance restrictions.
d. All of the above.
8. How might an export processing zone (EPZ) impose costs the exceed benefits in a host
country?
a. The cost of infrastructure to support the EPZ might exceed the sum of benefits.
b. The foreign exchange costs of the import of components might exceed foreign
exchange earnings from the EPZ.
c. The EPZ project might be closed down before yielding a net benefit.
d. All of the above.
9. Which of the following is not a benefit to the host country of backward linkages from a
foreign firm to local suppliers?
a. Employment would increase because of the additional local production.
b. The balance of payments would benefit because imports for the foreign firm would
decrease.
c. Technology required by the foreign firm might not be compatible with local
conditions.
d. None of the above.
10. Which of the following best describes the positive externalities or spillovers from foreign
direct investment (FDI)?
a. Host countries can count on positive spillovers from FDI in circumstances were
conditions are right.
b. Host countries can always count on positive spillovers from FDI.
c. Host countries can rarely count of positive spillovers from FDI.
d. Positive spillovers from FDI are an economic impossibility.
11. How can host countries best promote linkages from foreign firms to their domestic
suppliers?
a. Use a local content requirement.
b. Provide a matching service between the foreign firm and domestic suppliers.
c. Use a domestic sales requirement.
d. All of the above.
12. The goal of transfer pricing is:
a. To supply the product cheaply.
b. To maximize pre-tax profits.
c. To maximize post-tax profits.
d. To ensure reliable suppliers.
TRUE/FALSE
1. Intellectual property protection can potentially help a country to attract foreign direct
investment.
2. The number of bilateral investment treaties (BITs) has remained largely stagnant over
time.
3. The repatriation of profits from a foreign firm to its home country causes a positive entry
into the host country’s balance of payments.
4. The setting up of a production facility in the host country by of foreign firm causes a
positive entry on the host country’s balance of payments.
5. In some circumstances, foreign firms activities can impost environmental costs on host
countries.
6. Performance requirements imposed on foreign firms by host country governments restrict
the ownership of the local subsidiary.
7. Transfer pricing is always an illegal activity.
8. The OECD Guidelines for Multinational Enterprises are an example of a multilateral
approach to governing international production.
SHORT ANSWER
1. How might a host country gain from positive competition effects of foreign direct
investment (FDI)? Would this always be the case?
2. How could foreign direct investment (FDI) and the presence of a multinational enterprise
(MNE) benefit a host country in the areas of education and training? Would this always
be the case?
3. How can a host county measure the net benefit to its hosting a particular FDI project?
4. Please explain the potential health and environmental impacts of FDI and their
relationship to the pollution haven hypothesis.
5. Now that local content requirements are prohibited under the WTO’s TRIMs agreement,
how can a host country best facilitate backward linkages from foreign firms to local
suppliers?
6. How was it that Ireland was so successful in attracting FDI?
7. How can the use of transfer pricing on the part of MNEs hurt host countries? How can
this sort of transfer pricing be addressed from a policy perspective?