Question 1

Typically,licensing will be a common strategy in oligopolies where competitive interdependence requires that multinational firms maintain tight control over foreign operations so that they have the ability to launch coordinated attacks against their global competitors.

Accepted Answer

Licensing involves granting rights to a firm in another country to produce and sell a company's product, which does not allow for tight control over operations. In oligopolies, firms often prefer strategies like joint ventures or wholly-owned subsidiaries to maintain control and coordinate strategies.

Question 2

The term "offshore production" refers to FDI undertaken to serve the home market.

Accepted Answer

Offshore production involves a company setting up production facilities in another country to produce goods or services that are then exported back to the company's home market.

Question 3

Pragmatic nationalism traces its roots to Marxist political and economic theory.

Accepted Answer

Pragmatic nationalism does not have its roots in Marxist theory. It is a term used to describe a practical approach to nationalism that prioritizes the well-being and interests of the nation and its people, rather than adhering to strict ideological beliefs.

Question 4

An aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by,for example,offering subsidies to foreign MNEs in the form of tax breaks or grants.

Accepted Answer

Pragmatic nationalism emphasizes the use of economic policies such as attracting foreign direct investment (FDI) to achieve national interests. This can include offering incentives such as tax breaks or grants to foreign multinational enterprises (MNEs) to encourage them to invest in the country.

Question 5

The WTO has been very successful in efforts to initiate talks aimed at establishing a universal set of rules designed to promote the liberalization of FDI.

Accepted Answer

While the WTO has played a role in promoting international investment, it has not been successful in establishing a universal set of rules specifically focused on liberalizing FDI. FDI rules and policies are typically negotiated through bilateral or regional agreements, and there is no global agreement on FDI liberalization.

Question 6

Jobs created in local suppliers as a result of the MNE's investment and jobs created because of increased local spending by employees of the MNE are examples of direct employment effects of FDI.

Accepted Answer

These are examples of indirect employment effects of FDI, as they result from the MNE's investment but are not directly within the MNE itself.

Question 7

FDI does not benefit the host country's balance of payments if the foreign subsidiary creates demand for home-country exports of capital equipment,intermediate goods,or complementary products.

Accepted Answer

FDI can benefit the host country's balance of payments if the foreign subsidiary imports goods and services from the host country, generates revenue and profits in the host country, and creates jobs and income for the host country's residents. This can lead to an increase in exports of local goods and services, and hence a positive impact on the balance of payments. However, if the foreign subsidiary creates demand for imports from its home country, this could lead to a negative impact on the host country's balance of payments.

Question 8

A current account deficit exists when a country imports more than it exports.

Accepted Answer

A current account deficit occurs when a country's imports exceed its exports, creating a negative balance of trade. This means that the country is spending more on foreign goods and services than it is earning from its exports, which can have a negative impact on economic growth and stability.

Question 9

Under a 1997 agreement sponsored by the WTO,outward investment has increased competition and stimulated investment in the modernization of telephone networks around the world,leading to better service.

Accepted Answer

The answer of Under a 1997 agreement sponsored by the...

Question 10

Countries cannot prohibit national firms from investing in certain countries for political reasons.

Accepted Answer

Countries have the sovereignty to allow or restrict foreign investments, and can apply political reasons to do so. Some factors for restricting foreign investments could be national security, public interest, or protecting strategic industries.

Question 11

Licensing is a good option for firms in high-tech industries where protecting firm-specific expertise is of paramount importance.

Accepted Answer

Licensing can risk exposing firm-specific expertise to licensees, which may lead to loss of competitive advantage, especially in high-tech industries where such expertise is crucial.

Question 12

The product life-cycle theory and Knickerbocker's theory of horizontal FDI tend to be very useful from a business perspective because the theories are more descriptive than analytical.

Accepted Answer

The product life-cycle theory and Knickerbocker's theory of horizontal FDI are more analytical than descriptive. The theories explain the motives and behavior of firms in the international market and provide a framework for understanding the patterns of global investment and trade. As such, they are essential tools for businesses in making informed decisions about international expansion and competition.

Question 13

There is research supporting the view that multinational firms often transfer significant technology when they invest in a foreign country.

Accepted Answer

Many multinational firms invest in foreign countries with the intention of accessing new markets, resources, and technological capabilities. In this process, they often transfer technology to local firms and contribute to the development of the host country's technological capabilities. This has been documented in several studies and is seen as a positive impact of foreign direct investment.

Question 14

The free market view argues that FDI is a benefit to both the source country and to the host country.

Accepted Answer

According to the free market view, FDI brings benefits to both the source country (where the company investing originates from) and the host country (where the investment is being made). This is because FDI can bring new technologies, employment opportunities, and economic growth to the host country, while also allowing the source country to expand its markets and increase profits. The free market view emphasizes the importance of unrestricted and open international trade and investment, and therefore sees FDI as a positive force for economic growth and development.

Question 15

A country's balance of payments accounts keep track of both its payments to and its receipts from other countries.

Accepted Answer

The balance of payments accounts, also known as the balance of international transactions, is a record of a country's economic transactions with the rest of the world, including both its payments to and its receipts from other countries.

Question 16

Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs.

Accepted Answer

Countries adopting a pragmatic stance prioritize their national interests and take actions that bring benefits while limiting costs.

Question 17

The two most common methods of restricting inward FDI are ownership restraints and performance requirements.

Accepted Answer

Ownership restraints and performance requirements are indeed the two most common methods of restricting inward foreign direct investment (FDI). Ownership restraints limit the percentage of ownership that foreign investors can have in certain sectors or industries, while performance requirements impose conditions on foreign investors such as local hiring, minimum levels of domestic content, technology transfer, or exporting.

Question 18

Host governments sometimes worry that the subsidiaries of foreign MNEs may have greater economic power than indigenous competitors.

Accepted Answer

Host governments may worry that foreign MNE subsidiaries have greater resources, technology, expertise, and access to global markets that could give them a competitive advantage over local companies. This could potentially lead to market domination, unfair competition, and loss of market share for local players, which can have negative consequences on the local economy.

Question 19

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.

Accepted Answer

Foreign direct investment can indeed bring in capital, technology, and managerial expertise that can benefit the host economy. These resources can lead to the creation of new jobs, the development of new industries, and improvements in overall competitiveness, all of which can contribute to economic growth. However, the ultimate impact of foreign direct investment on a host economy depends on a variety of factors, such as the quality of institutions, the level of human capital, and the extent of local linkages and spillovers.

Question 20

Host country citizens that are employed by an MNE following an FDI are an example of an indirect effect of FDI.

Accepted Answer

The answer of Host country citizens that are employed by...

Quiz 7: Foreign Direct Investment