POSC126 Key Concepts Exam #2

Foreign Direct Investment (FDI)

Definition: FDI refers to an investment made by a firm or individual in one country into business interests located in another country, typically through ownership or control of a company or assets

Context/Significance: FDI is a key driver of globalization and economic integration. Historically, it expanded rapidly post-World War II, facilitated by liberalization policies and institutions like the WTO. It plays a central role in the IPE by shaping development patterns, power relations, and national policy autonomy.

Greenfield vs. Brownfield FDI

Definition: Greenfield FDI involves building new facilities from the ground up in a foreign country. Brownfield FDI involves acquiring or leasing existing facilities or firms in the host country.

Context/Significance: Greenfield FDI often leads to job creation and technology transfer but requires more time and capital. Brownfield FDI enables faster market entry and efficiency gains. The choice between them affects host country development strategies and regulatory policies in international political economy.

Multinational Corporation (MNC)

Definition: An MNC is a firm that operates and controls production or delivers services in more than one country through subsidiaries or branches

Context/Significance: MNCs are powerful actors in the global economy, influencing trade, investment, and regulation. Since the 20th century, their growth has raised questions about state sovereignty, labor standards, and the distribution of economic benefits in IPE.

Product Cycle Theory

Definition: A theory that explains how a product’s production location shifts internationally over its life cycle—from innovation in advanced economies to mass production in developing countries

Context/Significance: Introduced by Raymond Vernon in the 1960s, the theory illustrates patterns of trade and FDI. It highlights how technological innovation, cost efficiency, and market saturation drive global production and investment flows—key dynamics in international political economy.

Location Motive of MNCs

Definition: The strategic reasons why multinational corporations choose specific countries for investment, such as access to markets, resources, labor, or favorable regulations

Context/Significance: These motives help explain patterns of global FDI. In IPE, they reveal how MNCs respond to differences in national policies, costs, and political stability—shaping global production networks and influencing host country development

Horizontal Integration (intangible assets)

Definition: When an MNC expands into foreign markets by replicating the same production activities across countries, leveraging intangible assets like brand name, technology, or managerial expertise

Context/Significance: Horizontal integration allows firms to exploit firm-specific advantages globally without transferring physical capital. In IPE, it explains how knowledge-based assets drive international expansion and affect competition, regulation, and sovereignty