Foreign Direct Investment

What can countries do to attract FDI?

• Improve infrastructure

• Reduce taxes

• Enhance political stability

• All of the above

What factors pose the greatest barriers for foreign firms to building guanxi, the crucial relationship networks?

• Cultural differences

• Language barriers

• Lack of local knowledge

• All of the above

Why do so many firms apparently prefer FDI to either exporting or licensing?

• FDI allows firms to maintain control over their operations and intellectual property.

• Exporting is always more expensive than FDI.

• Licensing always results in lower profits.

• FDI is the only legal option in many countries.

What are the three main benefits of inward FDI for a host country?

• Increased capital inflow, technology transfer, and job creation

• Increased capital outflow, technology drain, and job loss

• Decreased capital inflow, technology stagnation, and job reduction

• Increased capital inflow, technology drain, and job creation

FDI can make a positive contribution to a host economy by:

• Increasing employment opportunities

• Reducing foreign exchange reserves

• Decreasing competition

• Lowering the standard of living

What is the beneficial employment effect claimed for FDI?

• Job creation

• Increased wages

• Improved working conditions

• Enhanced worker skills

What are the two ways in which FDI can help a country achieve a current account surplus?

• By increasing exports and reducing imports

• By increasing imports and reducing exports

• By increasing both imports and exports

• By reducing both imports and exports

Host governments sometimes worry about the subsidiaries of foreign MNEs operating in their country because:

• They may exploit local resources.

• They may create job opportunities.

• They may bring advanced technology.

• They may improve infrastructure.

What are the three sources of benefits of FDI to the home country?

• Increased foreign exchange earnings, technology transfer, and employment generation

• Increased foreign exchange earnings, technology transfer, and improved infrastructure

• Technology transfer, employment generation, and improved infrastructure

• Increased foreign exchange earnings, employment generation, and improved infrastructure

Which of the following are policy instruments that governments use to regulate FDI activity by MNEs?

• Tax incentives

• Trade barriers

• Subsidies

• All of the above