Deck 14: Foreign Finance, Investment, and Aid: Controversies and Opportunities  

Question 1

What are the main forms through which foreign capital flows into LDCs? Discuss the evolution of the various forms over the last decade.

Answer 1

Official and private flows. Private flows are made up of FDI, portfolio investment, and commercial bank loans. Official flows are now much less important than they were at the beginning of the 199.2). In recent years, bank loans represent net outflows for LDCs.

Question 2

What are the main factors that have contributed to Botswana's relative economic success compared to other sub-Saharan African countries? Why were these factors not emulated by other SSA countries?

Answer 2

Discussed, in part, in the case study.

Question 3

The amount of foreign aid in proportion to developed countries' GNP has

A)increased over time.
B)remained fairly stable over time.
C)decreased over time.
D) fluctuated widely but has shown no clear trend.

Answer 3

C

Question 4

Explain what is meant by investment by MNCs that encourage inappropriate consumption.

Question 5

Discuss the pattern of allocation of foreign aid by members of the Development Assistance Committee (DAC) to developing countries in recent years. What are the priorities of the DAC members in allocating foreign aid among recipients?

Question 6

State three major potential advantages of foreign direct investment for a developing country. State three major potential disadvantages.

Question 7

MNCs can often decrease their tax liability through

A)use of more capital-intensive techniques.
B)use of transfer pricing.
C)use of more foreign input sources.
D) bargaining with the host country.
E) none of the above.

Question 8

Explain the motives of developed countries in providing foreign aid.

Question 9

Suppose an MNC subsidiary buys 100 input units from its parent at a price of $2 each. It has $300 in additional production costs, and sells its 100 units of output for $6 to the MNC. It pays a 25% local profit tax. The MNC sells the output at home for $8, and its cost of producing inputs is $1. It pays a profit tax of 20% at home on repatriated profits. What is the subsidiary net profit, assume no selling costs at home? What is the MNC's total profit from the operation?

Question 10

Discuss how remittances can help reduce poverty and meet other development objectives in recipient nations.

Question 11

Provide a concise statement on the relationship between multinational corporation investment and economic activity in developing countries with respect to: (a) the three gaps, (b) comparative advantage, (c) the debt crisis, (d) scale economies, and (e) pattern of consumption.

Question 12

An argument in favor of foreign direct investment is that it tends to

A)reduce inequality.
B)promote rural development.
C)increase access to modern technology.
D) decrease local ownership.
E) none of the above.

Question 13

Which of the following is an argument against MNCs?

A)A reduction in inequality
B)An increase in the use of labor intensive technology
C)A deterioration of the balance of payments accounts
D) An increase in government tax revenue
E) None of the above

Question 14

Critically evaluate the following statement: "If no other assistance is available, tied aid should be accepted anyway, on the grounds that developing countries should accept any help they can get."

Question 15

Provide a concise statement about the relationship between multinational corporations and:?(a) domestic employment, (b) foreign exchange, (c) taxes, (d) investment, (e) consumption,?(f) industrialization, (g) inequality, and (h) technology.

Question 16

Why does investment by multinational corporations not necessarily help to close the foreign exchange gap?

Question 17

Why does multinational corporation investment not necessarily offer the advantage of domestic employment expansion?

Question 18

One of the significant criticisms of MNCs is

A)the relatively low wages they pay.
B)on balance, they bring in more capital than officially registered.
C)increased monetary policy effectiveness.
D) all of the above.
E) none of the above.

Question 19

It has been argued that tied aid leads to inefficiencies in the recipient country's economy. Explain how this could occur.

Question 20

State at least two major benefits of promoting nongovernmental organizations in developing countries as sources and conduits of foreign assistance.

Question 21

Which of the following countries regularly meets the UN target for the provision of foreign aid ?(as a percent of GNI)?

A)Japan
B)United States
C)Denmark
D) France

Question 22

As a percentage of GNI, which of the following countries provides the greatest amount of ?foreign aid?

A)United Kingdom
B)United States
C)Italy
D) Sweden

Question 23

The direct benefits of out-migration to a developing nation include

A)loss of skilled workers.
B)increased remittances.
C)job growth.
D) larger capital formation.

Question 24

As an absolute amount (billions of dollars), which of the following countries provides the greatest amount of foreign aid?

A)United Kingdom
B)United States
C)Italy
D) Sweden

Question 25

A motivation of developed countries in providing development assistance is

A)the creation of markets.
B)geopolitical influence.
C)genuine humanitarian concern.
D) all of the above.
E) none of the above.

Question 26

During 1990-2003, as a percentage of total resources flowed to developing countries, the share of official flows

A)remained relatively constant.
B)increased by a relatively small percentage.
C)increased by a relatively large percentage.
D) decreased by a relatively small percentage.
E) decreased by a relatively large percentage.

Question 27

Which of the following is not a type of portfolio investment?

A)Investment in stocks
B)Multinational corporation investment
C)Investment in commercial paper
D) All are types of portfolio investment.
E) None are types of portfolio investment.

Question 28

With tied aid

A)MNC investment depends on tax concessions.
B)aid recipients must use the aid to purchase goods and services from the donor.
C)aid recipients must follow World Bank/IMF conditionality.
D) all of the above.

Question 29

In the two-gap model, which of the following gaps, when binding, leads to foreign aid having the largest impact on GNP?

A)Fiscal gap
B)Savings gap
C)Foreign exchange gap
D) None of the above

Question 30

The best explanation for the late 1994/early 1995 collapse of the Mexican peso and stock market is

A)free movement of capital internationally is destabilizing for a developing country.
B)portfolio investments were camouflaging overvalued exchange rates.
C)debt for equity swaps had created imbalances in the ownership structure of the economy.
D) the potential benefits of NAFTA had been oversold.

Question 31

A model comparing savings and foreign exchange constraints to see which is binding for economic growth is known as a

A)project appraisal.
B)two-gap model.
C)computable general equilibrium.
D) trickle down model.
E) None of the above

Question 32

Voluntary organizations that work with and on behalf of mostly local grassroots organizations in developing countries are termed

A)international organizations.
B)nongovernmental organizations.
C)multilateral institutions.
D) equity organizations.
E) None of the above

Question 33

The largest recipient of remittances in dollars in the year 2004 was

A) India.
B) Mexico.
C) Pakistan.
D) The Philippines.

Question 34

The developing area receiving the largest share of direct foreign investment is/are

A)Africa.
B)Asia
C)Latin America.
D) transition economies.