Chapter 8

What is the flow of FDI?

The amount of FDI undertaken over time

What does the stock of FDI refer to?

The total accumulated value of foreign-owned assets

What are inflows of FDI?

Flows of FDI into a country

What has historically been the direction of FDI?

Most FDI has been directed at developed nations, particularly the US and Europe

Where are inflows of FDI currently directed?

Developing nations are now receiving more FDI

Which regions have received the most FDI inflows?

East Europe and Southeast Asia, specifically China

What relationship does the Knickerbocker theory explore?

The relationship between FDI and rivalry in oligopolistic industries, how firms will match each others moves in markets

What 2 factors in Dunning’s Eclectic Paradigm are considered to explain the rationale and direction of FDI?

location specific advantages and externalities

What are location-specific advantages in Dunning's eclectic paradigm?

Advantages arising from using resource or assets tied to a location

What is the radical view on Political Ideology regarding FDI?

MNE is seen as a tool for exploiting host countries for the exclusive benefit of capitalist home countries

What is the free market view on FDI?

International production should be distributed based on the theory of comparative advantage

What does pragmatic nationalism say about FDI?

There are benefits like capital and jobs, but costs like repatriation of profits

Why are acquisitions attractive in FDI?

Because they are quicker to execute than greenfield investments, easier, and less risky

What is a greenfield investment?

Establishing new operations in a foreign country

What are some limitations of exporting?

Transport costs and trade barriers can limit exporting

What is exporting?

The process of producing goods at home and then shipping them to another country for sale

What is licensing in international business?

When a company allows a foreign business to make and sell its product in exchange for a fee

What are the limits of licensing?

Can lead to the loss of valuable technology to foreign competitors and limits control over manufacturing and marketing

When would FDI be favored over exporting?

When transport costs are high and trade barriers are high

What effects can FDI have on host countries?

FDI can bring capital, technology, management resources, and create jobs

What is the current account in balance of payments?

It records a country's export and import of goods and services

How can FDI help achieve a current account surplus?

It can substitute for imports of goods and services

What does the capital account record?

It records a country’s financial transactions in foreign investments

According to the U.S. Department of Commerce, what occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity?

Foreign Direct Investment (FDI)