Foreign Direct Investment

Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.

• Product life-cycle theory

• Perfect markets theory

• Internalization theory

• Random walk theory

Advantages that arise from using resource endowments or assets that are tied to a particular place and that a firm finds valuable to combine with its own unique assets are known as:

• capital-specific advantages

• absolute advantages

• production factor advantages

• location-specific advantages

FDI occurs when a firm:

• ships its products from one country to another

• invests directly in facilities to produce a product in a foreign country

• invests in the shares of another company operating in the same country

• grants permission to another company in a different country to use its brand name

Which of the following is a home-country policy aimed at limiting outward FDI flow?

• Taxing domestic companies' foreign earnings at a higher rate than their domestic earnings

• Implementation of government-backed insurance programs to cover major types of foreign investment risk

• Eliminating double taxation of foreign income

• Persuading host countries to relax their restrictions on inbound FDI

The _____ of FDI refers to the amount of FDI undertaken over a year.

• stock

• net value

• accumulated value

• flow

arise(s) when two or more enterprises encounter each other in different regional markets, national markets, or industries.

• Externalities

• Multipoint competition

• Location-specific advantages

• FDI

is the political ideology most hostile to FDI, and is the most supportive of FDI.

• The radical view; pragmatic nationalism

• Pragmatic nationalism; the free market view

• The radical view; the free market view

• The free market view; pragmatic nationalism

Which of the following is a reason why the European Union is considered an imperfect economic union?

• Factors of production are not allowed to move freely between member countries

• Not all members of the union have adopted the euro

• Almost all markets are heavily regulated

• Products and services are not allowed to move freely between member countries

From least integrated to most integrated, the levels of economic integration are:

• a common market, a free trade area, an economic union, a customs union, and a political union.

• a free trade area, a customs union, a common market, an economic union, and a political union.

• a customs union, a free trade area, a common market, a political union, and an economic union.

• a common market, an economic union, a customs union, a free trade area, and a political union.

Three countries agree to remove barriers to trade between member countries and adopt a common external trade policy toward nonmembers. They also agree to allow people and other factors of production to move freely across their borders. Which level of economic integration is this an example of?

• Bonded market

• Customs union

• Free trade area

• Common market