Foreign Direct Investment (FDI) Overview

These flashcards cover key concepts related to Foreign Direct Investment (FDI) as discussed in the lecture notes.

What is Foreign Portfolio Investment (FPI)?

Investment in a portfolio of foreign securities such as stocks and bonds.

What do Sovereign Wealth Funds (SWF) consist of?

A state-owned investment fund composed of financial assets such as stocks, bonds, real estate, and other financial instruments.

What is Horizontal FDI?

A type of FDI in which a firm duplicates its home country-based activities at the same value-chain stage in a host country.

What is Vertical FDI?

A type of FDI in which a firm moves upstream or downstream at different value-chain stages in a host country.

What is Upstream Vertical FDI?

A type of vertical FDI in which a firm engages in an upstream stage of the value chain in a host country.

What is Downstream Vertical FDI?

A type of vertical FDI in which a firm engages in a downstream stage of the value chain in a host country.

What is FDI flow?

The amount of FDI moving in a given period (usually a year) in a certain direction.

What is the difference between FDI inflow and outflow?

FDI inflow is inward FDI moving into a country in a year, while FDI outflow is outward FDI moving out of a country in a year.

What does the OLI Framework stand for in FDI?

Ownership (O), Location (L), and Internalization (I) advantages.

What are Ownership advantages?

An MNE’s possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas.

What are the reasons firms prefer FDI over Licensing?

FDI reduces dissemination risks, provides tight control over foreign operations, and facilitates the transfer of tacit knowledge.

What is agglomeration in the context of location advantages?

Clustering of economic activities in certain locations that leads to advantages such as knowledge spillovers.

What is a pragmatic nationalism view on FDI?

A political view that only approves FDI when its benefits outweigh its costs.

What are the benefits of FDI to host countries?

Capital inflow, technology spillover, and job creation.

What are the main costs of FDI to home countries?

Capital outflow and job loss.

What is meant by tax avoidance in the context of FDI?

Efforts to minimize taxes, often leading firms to operate in tax havens.

What should firms assess when considering FDI?

Firms should assess whether FDI is justified compared to other foreign entry modes such as outsourcing and licensing.