Question 1

Location-specific advantages for a firm are those that arise from:

Accepted Answer

According to British economist John Dunning,location-specific advantages mean 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 (such as the firm's technological,marketing,or management capabilities).

Question 2

According to the radical view,which of the following countries would benefit the most from FDI?

Accepted Answer

According to the radical view,FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward and dependent on advanced capitalist nations for investment,jobs,and technology.Radical writers see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

Question 3

According to the text,which of the following statements regarding the free market view is true?

Accepted Answer

The free market view has been ascendant worldwide in recent years,spurring a global move toward the removal of restrictions on inward and outward foreign direct investment.However,in practice no country has adopted the free market view in its pure form.

Question 4

According to the pragmatic nationalistic view,many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country,which has negative implications for the host country's _____.

Accepted Answer

Many countries are also concerned that a foreign-owned manufacturing plant may import many components from its home country,which has negative implications for the host country's balance-of-payments position.

Question 5

In its extreme version,the radical view advances the idea that foreign direct investment can only ever be an instrument of _____,never of _____.

Accepted Answer

According to the radical view,FDI by the firms of advanced capitalist nations keeps the less developed countries of the world relatively backward and dependent on advanced capitalist nations for investment,jobs,and technology.Thus,according to the extreme version of this view,no country should ever permit foreign corporations to undertake FDI,since they can never be instruments of economic development,only of economic domination.

Question 6

Offering subsidies to foreign MNEs in the form of tax breaks or grants is one way of:

Accepted Answer

One 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.

Question 7

Economists refer to knowledge "spillovers" that occur when companies in the same industry are located in the same area as:

Accepted Answer

According to Dunning,Silicon Valley has a location-specific advantage in the generation of knowledge related to the computer and semiconductor industries that comes from the sheer concentration of intellectual talent in this area,and arises from a network of informal contacts that allows firms to benefit from each others' knowledge generation.Economists refer to such knowledge "spillovers" as externalities.

Question 8

According to the _____ view,FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs.

Accepted Answer

Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs.According to this view,FDI should be allowed so long as the benefits outweigh the costs.

Question 9

According to the free market view,how does FDI by the MNE increase the efficiency of world economy?

Accepted Answer

The free market view argues that countries should specialize in the production of those goods and services that they can produce most efficiently.Within this framework,the MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe.Viewed this way,FDI by the MNE increases the overall efficiency of the world economy.

Question 10

Which theory helps explain how location factors affect the direction of FDI?

Accepted Answer

The eclectic paradigm has been championed by the British economist John Dunning who argues that location-specific advantages are also of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

Question 11

According to Dunning,it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes because:

Accepted Answer

The cost and skill of labor varies from country to country.Since labor is not internationally mobile,according to Dunning it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes.

Question 12

Which of the following is a reason for the decline in the popularity of the radical view?

Accepted Answer

By the end of the 1980s,the radical position was in retreat almost everywhere due to: (1)the collapse of communism in Eastern Europe; (2)the generally abysmal economic performance of those countries that embraced the radical position,and their growing belief that FDI can stimulate economic growth;and (3)the strong economic performance of those developing countries that embraced capitalism.

Question 13

The _____ view of FDI traces its roots to Marxist political and economic theory.

Accepted Answer

The radical view traces its roots to Marxist political and economic theory.Radical writers argue that the multinational enterprise (MNE)is an instrument of imperialist domination and MNEs already existing in a country should be immediately nationalized.

Question 14

Britain reserves the right to intervene in FDI by:

Accepted Answer

Governments of countries such as Great Britain and the United States both have still reserved the right to intervene in FDI.Britain does so by reserving the right to block foreign takeovers of domestic firms if the takeovers are seen as "contrary to national security interests" or if they have the potential for "reducing competition."

Question 15

Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other,thus offering the location-specific advantage of:

Accepted Answer

Silicon Valley is the world center for the computer and semiconductor industry.Many of the world's major computer and semiconductor companies,such as Apple Computer,Hewlett-Packard,and Intel,are located close to each other here.In Dunning's language,this means that Silicon Valley has a location-specific advantage in the generation of knowledge related to the computer and semiconductor industries.Economists refer to such knowledge "spillovers" as externalities.and a well-established theory suggests that firms can benefit from such externalities by locating close to their source.

Question 16

The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of:

Accepted Answer

One 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.

Question 17

One of the concerns harbored by host nations regarding FDI is that foreign firms will:

Accepted Answer

The pragmatic nationalist view is that FDI has both benefits and costs.FDI can benefit a host country by bringing capital,skills,technology,and jobs,but those benefits come at a cost.When a foreign company rather than a domestic company produces products,the profits from that investment go abroad.

Question 18

The radical view propounds the idea that multinational enterprises (MNEs)that already exist in a country should be immediately ______.

Accepted Answer

According to the extreme version of the radical view,no country should ever permit foreign corporations to undertake FDI,since they can never be instruments of economic development,only of economic domination.Where MNEs already exist in a country,they should be immediately nationalized.

Question 19

Until the 1980s,Japan perceived direct entry of foreign (especially U.S. )firms with ample managerial resources into the Japanese markets as detrimental to the development and growth of their own industry and technology,leading Japan to block the majority of applications to invest in Japan.However,there were always exceptions to this policy,where,from the perspective of the Japanese government,the benefits of FDI outweighed the perceived costs.From this,it can be inferred that,Japan adopted the _____ view of FDI.

Accepted Answer

Until the 1980s,Japan's policy was probably one of the most restrictive among countries adopting a pragmatic nationalist stance.This was due to Japan's perception that direct entry of foreign (especially U.S. )firms with ample managerial resources into the Japanese markets could hamper the development and growth of their own industry and technology.This belief led Japan to block the majority of applications to invest in Japan.However,there were always exceptions to this policy,where,from the perspective of the Japanese government,the benefits of FDI outweighed the perceived costs.

Question 20

The _____ view argues that international production should be distributed among countries according to the theory of comparative advantage.

Accepted Answer

The free market view traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo and argues that international production should be distributed among countries according to the theory of comparative advantage by specializing in the production of those goods and services that they can produce most efficiently.

Quiz 7: Foreign Direct Investment