62.
Advantages that arise from using resource endowments or assets that are
tied to a particular place and that a firm finds valuable to combine with its
own unique assets are known as:
A.
location-specific advantages.
B.
capital-specific advantages.
C.
absolute advantages.
D.
production factor advantages.
By location-specific advantages, John Dunning means the advantages that
arise from utilizing resource endowments or assets that are tied to a
particular foreign location and that a firm finds valuable to combine with its
own unique assets
63.
According to the _____ view of FDI, MNEs extract profits from the host
country and take them to their home country, giving nothing of value to the
host country in exchange.
A.
imperialist
B.
conservative
C.
free market
D.
radical
Radical writers see the MNE as a tool for exploiting host countries to the
exclusive benefit of their capitalist-imperialist home countries.
64.
Which view of FDI traces its roots to classical economics and the
international trade theories of Adam Smith and David Ricardo?
A.
Imperialist
B.
Conservative
C.
Free market
D.
Radical
The free market view traces its roots to classical economics and the
international trade theories of Adam Smith and David Ricardo. The
intellectual case for this view has been strengthened by the internalization
explanation of FDI.
65.
Which political view allows FDI so long as the benefits outweigh the costs?
A.
The traditional view
B.
The pragmatic nationalist view
C.
The radical view
D.
The free market view
The pragmatic nationalist view is that FDI has both benefits and costs.
According to this view, FDI should be allowed so long as the benefits
outweigh the costs.
66.
A country rejects FDI proposals in certain industries. It does so because the
tangible advantages of such investments are lesser than potential costs like
loss of employment and reduction of overall well-being. However, it
aggressively pursues inviting foreign investments in sectors like
infrastructure, education, and healthcare because of the benefits that
accrue with them. Which political view of FDI is discussed in this example?
A.
The pure market view
B.
The free market view
C.
The radical view
D.
The pragmatic nationalist view
The pragmatic nationalist view is that FDI has both benefits and costs.
According to this view, FDI should be allowed so long as the benefits
outweigh the costs.
67.
Why is it said that not all the new jobs created by FDI represent net
additions in employment?
A.
Because of the uncertainty of the overall economic environment
B.
Because most of the job creation is indirect in nature
C.
Because jobs created by an investment may be offset by the jobs lost in
domestic companies
D.
Because the unemployment rate more or less remains constant over the
short-term
Cynics argue that not all the “new jobs” created by FDI represent net
additions in employment. In the case of FDI by Japanese auto companies in
the United States, some argue that the jobs created by this investment have
been more than offset by the jobs lost in U.S.-owned auto companies,
which have lost market share to their Japanese competitors.
68.
When a company brings capital and/or technology to a host country, the
host country benefits from the:
A.
political effect of FDI.
B.
resource-transfer effect of FDI.
C.
balance-of-payments effect of FDI.
D.
bandwagon effect of FDI.
Foreign direct investment can make a positive contribution to a host
economy by supplying capital, technology, and management resources that
would otherwise not be available and thus boost that country’s economic
growth rate.
69.
A country’s _____ keeps track of its payments to and its receipts from other
countries.
A.
federal payments ledgers
B.
concurrent accounts
C.
checks-and-balances accounts
D.
balance-of-payments accounts
A country’s balance-of-payments accounts track both its payments to and
its receipts from other countries.
70.
Which of the following arises when a country is importing more goods and
services than it is exporting?
A.
Current account surplus
B.
Trade deficit
C.
Trade surplus
D.
Trade balance
A current account deficit, or trade deficit as it is often called, arises when a
country is importing more goods and services than it is exporting.
71.
Which of the following arises when a country is exporting more goods and
services than it is importing?
A.
Current account surplus
B.
Trade deficit
C.
Trade surplus
D.
Trade balance
A current account surplus, or trade surplus as it is often called, arises when
a country is exporting more goods and services than it is importing.
72.
In which of the following situations would FDI improve the current account
of the host country’s balance of payments?
A.
If the foreign subsidiary imports a substantial number of its inputs from
abroad
B.
If the FDI reduces existing employment opportunities
C.
If the FDI is a substitute for imports of goods or services
D.
If the FDI results in substitution of products produced domestically
If the FDI is a substitute for imports of goods or services, the effect can be
to improve the current account of the host country’s balance of payments.
Much of the FDI by Japanese automobile companies in the United States
and Europe, for example, can be seen as substituting for imports from
Japan.
73.
In which way can the source country’s balance of payments benefit from an
FDI made in a foreign country?
A.
From cash outflow during the initial investment to finance the FDI
B.
If the purpose of the foreign investment is to serve the home market from
a low-cost production location
C.
From the inward flow of foreign earnings
D.
If FDI is a substitute for direct exports
FDI can benefit the home (source) country’s balance of payments from the
inward flow of foreign earnings.
74.
How is the adverse effect of the balance of payments for the home country
due to an FDI usually offset?
A.
By increased imports to the home country as a result of the FDI
B.
By the subsequent inflow of foreign earnings
C.
By substituting direct exports made earlier from the home country
D.
By further investments usually made to expand foreign operations
For the home country, the balance of payments suffers from the initial
capital outflow required to finance the FDI. This effect, however, is usually
more than offset by the subsequent inflow of foreign earnings.
75.
FDI undertaken to serve the home market is known as:
A.
outsourcing.
B.
FDI substitution.
C.
offshore production.
D.
home market FDI.
The term offshore production refers to FDI undertaken to serve the home
market.
76.
How can FDI undertaken to serve the home market stimulate economic
growth in the home country?
A.
By freeing home-country resources to concentrate on activities where
the home country has a comparative advantage
B.
By importing more goods and services than it is exporting
C.
By circumventing trade barriers that may have prevented direct exports
in the past
D.
By reducing demand for home-country exports of capital equipment,
intermediate goods, and complementary products
Far from reducing home-country employment, such FDI may actually
stimulate economic growth (and hence employment) in the home country by
freeing home-country resources to concentrate on activities where the
home country has a comparative advantage.
77.
What is double taxation in the context of FDI?
A.
Taxation at twice the normal rate for foreign companies
B.
Taxing the producers as well as suppliers
C.
Taxation of income in both home and host country
D.
Taxation of both income as well as dividends paid
As an incentive to encourage domestic firms to undertake FDI, many
countries have eliminated double taxation of foreign income (i.e., taxation of
income in both the host country and the home country).
78.
Which of the following is a home-country policy aimed at limiting outward
FDI flow?
A.
Taxing domestic companies’ foreign earnings at a higher rate than their
domestic earnings
B.
Implementation of government-backed insurance programs to cover
major types of foreign investment risk
C.
Eliminating double taxation of foreign income
D.
Persuading host countries to relax their restrictions on inbound FDI
Countries have occasionally manipulated tax rules to try to encourage their
firms to invest at home. The objective behind such policies is to create jobs
at home rather than in other nations.
79.
Licensing would be a good option for firms in which of the following
industries?
A.
High-technology industries in which protecting firm-specific expertise is
of paramount importance.
B.
Global oligopolies, in which competitive interdependence requires that
multinational firms maintain tight control over foreign operations.
C.
Industries in which intense cost pressures require that multinational
firms maintain tight control over foreign operations.
D.
In fragmented, low-technology industries in which globally dispersed
manufacturing is not an option.
Licensing tends to be more common, and more profitable, in fragmented,
low-technology industries in which globally dispersed manufacturing is not
an option.
80.
_____ is essentially the service-industry version of licensing, although it
normally involves much longer term commitments.
A.
Franchising
B.
Subsidizing
C.
Greenfield investment
D.
Patenting
Franchising is essentially the service-industry version of licensing, although
it normally involves much longer-term commitments than licensing.
Essay Questions