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Chapter 6—Investing Abroad Directly
TRUE/FALSE
1. FPI refers to investment in a portfolio of foreign securities that do not entail the active management of
foreign assets.
ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 38 OBJ: LO: 6-1 NAT: BUSPROG: Analytic
KEY: Bloom's: Knowledge
2. An FPI does not provide management control rights to the investing firm.

3. A type of FDI in which the firm moves upstream or downstream in different value chain stages in a
host country is called horizontal FDI.
ANS: F PTS: 1 DIF: Difficulty: Moderate

4. A firm manufacturing clocks in its home country and through FDI is an example of downstream
vertical FDI.

KEY: Bloom's: Comprehension
5. Horizontal FDI refers to the amount of FDI moving out of a country in a year.
ANS: F PTS: 1 DIF: Difficulty: Easy

6. FDI stock refers to the accumulation of inbound FDI in a country or outbound FDI from a country.

7. In order to become an MNE, an exporter has to undertake FDI.

8. OLI advantages refers to a firm‘s quest for outsourcing (O) advantages, licensing (L)
advantages, and importing (I) advantages.
9. In the context of FDI, ownership refers to MNEs’ possession and leveraging of certain valuable, rare,
hard-to-imitate, and organizationally embedded (VRIO) assets overseas.

10. Internalization refers to the replacement of cross-border markets with one firm locating in two or more
countries.

11. The resource-based view argues that internalization is a response to the imperfect rules governing
international transactions.

12. Firms become MNEs because FDI provides OLI advantages that they otherwise would not obtain.

13. Dissemination risk refers to the cost that a firm has to endure even when its investment turns out to be
unsatisfactory.

14. The benefit of ownership lies in the combination of equity ownership rights and management control
rights.

15. Compared to licensing, FDI increases dissemination risks.

16. Compared to licensing, FDI provides more direct and tighter control over foreign operations.

17. Explicit knowledge is noncodifiable and its transfer requires hands-on practice.

18. Economic agglomeration is an example of an OLI advantage.

19. Expropriation refers to the knowledge diffused from one firm to others among closely located firms.

20. Oligopoly happens when an industry is dominated by one company.

21. Domestic transaction costs tend to be higher than international transaction costs.

22. Internalization can help reduce opportunistic behavior in international trade.

REF: p. 47 OBJ: LO: 6-2 NAT: BUSPROG: Ethics
23. Intrafirm trade refers to international transactions between two subsidiaries in a country controlled by
two different MNEs.

24. Intrafirm trade enables MNEs to better coordinate cross-border activities.

25. The radical view treats FDIs as an instrument of imperialism.

26. The free market type of FDI is the most prevalent type of FDI practiced.

27. Capital inflow can help improve a host country’s balance of payments.

28. Technology spillovers are harmful to host firms and industries.

29. The demonstration effect refers to the ability of a firm to engage in an upstream stage of the value
chain in a host country.

30. Repatriated earnings from profits of MNEs benefit the host country financially.

31. Investing in FDI will increase the home firm’s exports of components and services.

32. An FDI investment is not considered a zero-sum game.

33. Expropriation refers to the rewarding of property rights and incentives to MNEs from the host country.

34. MNEs encounter sunk costs when they face an obsolescing bargain with the host country.
35. FDI is more suitable if the activity is marginal and common across multiple end-user industries.

MULTIPLE CHOICE
1. FPI refers to the _____.

a. direct, hands-on management of foreign assets
b. amount of FDI moving in a given period in a certain direction
c. ability of a firm to engage in downstream stage of the value chain in a host country
d. investment in a portfolio of foreign securities that do not entail the active management of
foreign assets
ANS: D PTS: 1 DIF: Difficulty: Easy
2. _____ is a type of FDI in which a firm duplicates its home country-based activities at the same value
chain stage in a host country.
a. Horizontal FDI
b. Vertical FPI
c. Backward vertical FDI
d. Platform FDI
ANS: A PTS: 1 DIF: Difficulty: Easy
3. Harton, a car manufacturer based in UK, only assembles cars and does not manufacture components in
the UK. But in France, Harton enters into components manufacturing through FDI. Harton’s
investment in France would be an example of a(n) _____.
a. FPI
b. downstream vertical FDI
c. upstream vertical FDI
d. horizontal FDI
ANS: C PTS: 1 DIF: Difficulty: Challenging
REF: p. 39 OBJ: LO: 6-1 NAT: BUSPROG: Reflective Thinking
KEY: Bloom's: Application
4. A vertical FDI refers to a type of FDI in which _____.

a. a firm duplicates its home country-based activities at the same value chain stage in a host
country
b. a firm invests in a portfolio of foreign securities but without active management of those
foreign assets
c. a firm moves upstream or downstream at different value chain stages in a host country
d. a firm produces the same products or services in a host nation as it does at home
ANS: C PTS: 1 DIF: Difficulty: Easy
5. If Apple invests in iPhone dealerships in Asia but does not engage in distribution in the United States
(Apple’s host country), then Apple’s Asian investment would be considered a(n) _____.
a. downstream vertical FDI
b. upstream vertical FDI
c. horizontal FDI
d. FPI
ANS: A PTS: 1 DIF: Difficulty: Challenging
6. _____ is the amount of FDI moving in a given period (usually a year) in a certain direction.
a. FDI stock
b. FDI flow
c. Horizontal FDI
d. Vertical FDI
ANS: B PTS: 1 DIF: Difficulty: Easy
7. _____ refers to the total accumulation of inbound FDI in a country or outbound FDI from a country.
a. FDI flow
b. FDI stock
c. Horizontal FDI
d. Vertical FDI
8. If a firm engages in final assembly in its home operations, then which of the following operations of
the firm in a foreign country would be considered a downstream vertical FDI?
a. Research and development
b. Components procurement
c. Marketing
d. Final assembly
ANS: C PTS: 1 DIF: Difficulty: Moderate
9. OLI advantages refer to a firm’s quest for _____via FDI.

a. oligopolistic advantages, laissez-faire advantages, and intrafirm trade advantages
b. outsourcing advantages, licensing advantages, and importing advantages
c. organization advantages, leadership advantages, and innovation advantages
d. ownership advantages, location advantages, and internalization advantages
10. MNEs' possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally
embedded (VRIO) assets overseas in the context of FDI refer to _____.
a. location
b. ownership
c. internalization
d. market imperfections
11. _____ refers to the replacement of cross-border markets with one firm locating in two or more
countries.
a. Location advantage
b. Ownership advantage
c. Internalization
d. Agglomeration
12. A firm establishing a manufacturing plant in a foreign country due to the cheap labor costs in that
country is an example of the _____ advantage that the firm enjoys.
a. location
b. ownership
c. internalization
d. externalization
ANS: A PTS: 1 DIF: Difficulty: Moderate
13. _____ refers to the problems associated with unauthorized diffusion of firm-specific know-how.
a. Knowledge spill
b. Dissemination risk
c. Market imperfection
d. Technological spill
14. Firms prefer FDI to licensing because FDI_____.

a. increases the chances of opportunism when dealing with a host nation entity
b. requires complete dissemination of technological know-how to host nation entity
c. protects the firm from economic agglomeration
d. provides the firm with direct ownership to its foreign assets
ANS: D PTS: 1 DIF: Difficulty: Moderate
15. _____ knowledge can be written down and transferred without losing much of its richness.
a. Explicit
b. Implicit
c. Tacit
d. Inherent
16. _____ knowledge is noncodifiable and its acquisition and transfer requires hands-on practice.
a. Explicit
b. Tacit
c. Lucid
d. A priori
17. _____ refers to the clustering of economic activities in certain locations.

a. Internalization
b. Expropriation
c. Agglomeration
d. Intrafirm trade
18. Knowledge spillover refers to _____.

a. the risk associated with unauthorized diffusion of firm-specific know-how
b. a violation of the knowledge and IP rights secured by a copyright
c. knowledge diffused from one firm to others among closely located firms
d. the imperfect rules governing international transactions
19. A(n) _____ refers to an industry dominated by a small number of players.

a. oligopoly
b. monopoly
c. perfect competition
d. free market
20. The television industry in the United States is controlled by seven giant corporations: The Walt Disney
Company, CBS Corporation, Viacom, Comcast, Hearst Corporation, Time Warner, and News
Corporation. Thus, the television industry in the U.S. is a typical _____ industry.
a. agglomeration
b. free market
c. monopolistic
d. oligopolistic
ANS: D PTS: 1 DIF: Difficulty: Challenging
21. _____ refers to international transactions between two subsidiaries in two countries controlled by the
same MNE.
a. Intrafirm trade
b. Oligopoly
c. Agglomeration
d. Monopolization
22. Which of the following political views treats FDI as an instrument of imperialism and as a vehicle for
exploitation of domestic resources by foreign capitalists and firms?
a. Pragmatic nationalism
b. The free-market view
c. The radical view
d. The monopolistic view
23. _____ suggests that FDI, unrestricted by government intervention, will enable countries to tap into
their absolute or comparative advantages by specializing in the production of certain goods or services.
a. The radical view
b. The free-market view
c. Pragmatic nationalism
d. The monopolistic view
24. Which of the following political perspectives maintains the view that FDI has both pros and cons and
can only be approved when its benefits outweigh costs?
b. Protectionism
c. The radical view of FDI
d. The free market view of FDI
25. Which of the following economic perspectives on FDI has its principles rooted in Marxism?
b. Laissez-faire
c. The free market view
d. The radical view
26. _____ refers to the reaction of local firms to rise to the challenge demonstrated by MNEs through
learning and imitation.
a. Bandwagon effect
b. Domino effect
c. Dissemination risk
d. Contagion effect
27. Which of the following is a primary cost of FDI to host countries?

a. Capital inflow
b. Increase in competition between local firms
c. Capital and job loss
d. Loss of sovereignty
28. Which of the following is a benefit of FDI to home countries?

a. Decrease in competition between local firms
b. Capital outflow
c. Learning from operations
d. Creation of new jobs
29. Which of the following is a primary cost of FDI to home countries?

a. Loss of sovereignty
b. Increase in local competition
c. Capital outflow and job loss
d. Increased exports of components and services to host countries
30. _____ refers to the ability to extract favorable outcome from negotiations due to one party’s strengths.
a. Expropriation
b. Bargaining power
c. Compromising power
d. Accommodating power
31. _____ refers to the deal struck by MNEs and host governments, which change their requirements after
the initial FDI entry.
a. Obsolescing bargain
b. Integrative bargain
c. Automated bargain
d. Ongoing bargain
32. In Round Two of FDI negotiation process between MNEs and host governments, _____.
a. the government may demand renegotiations of the deal
b. the MNE is not willing to enter in the absence of some government assurance
c. the previous deal becomes obsolete
d. the MNE enters the host market and earns profits
33. Government’s confiscation of foreign assets is known as _____.

a. obsolescing bargains
b. sunk costs
c. expropriation
d. conflicting interests
34. Costs that a firm has to endure even when its investment turns out to be unsatisfactory are referred to
as _____.
a. switching costs
b. replacement costs
c. cost overruns
d. sunk costs
35. Which of the following statements best describes an FDI?

a. Setting up subsidiaries in foreign locations to do in-house work
b. Turning over an organizational activity to an outside supplier to perform on behalf of the
firm
c. Outsourcing an in-house activity to another domestic firm
d. Assigning firm activities to foreign firms in neighboring countries
ANS: A PTS: 1 DIF: Difficulty: Moderate
REF: pp. 54-55 OBJ: LO: 6-4 NAT: BUSPROG: Analytic
ESSAY
1. Differentiate between the primary characteristics of horizontal and vertical FDI.
ANS:
There are two main types of FDI: horizontal and vertical. A type of FDI in which a firm duplicates its
home country-based activities at the same value chain stage in a host country through FDI is known as
horizontal FDI. Overall, horizontal FDI refers to producing the same products or offering the same
services in a host country as firms do at home. A type of FDI in which a firm moves upstream or
downstream in different value-chain stages in a host country through FDI is known as vertical FDI.
The type of vertical FDI a firm engages in depends on which direction it moves in its value chain.
PTS: 1 DIF: Difficulty: Moderate REF: p. 39

OBJ: LO: 6-1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension
2. Why do firms prefer FDI to licensing?
ANS:
FDI affords a high degree of direct management control that reduces the risk of firm-specific resources
and capabilities being opportunistically taken advantage of. One of the leading risks abroad is
dissemination risk, defined as the risk associated with unauthorized diffusion of firm-specific
knowledge. FDI reduces dissemination risks because it provides more direct and tighter control over
foreign operations. Without FDI, foreign firms cannot order or control its licensee to move ahead.
Finally, FDI facilitates the transfer of implicit knowledge through "learning by doing." Certain
knowledge calls for FDI as opposed to licensing as they may be too difficult to transfer to licensees
without FDI.
PTS: 1 DIF: Difficulty: Moderate REF: pp. 43-44

3. Explain the location advantages of FDI. Discuss the value of acquiring and neutralizing location
advantages with an example that highlights how a location advantage does not necessarily overlap a
country-level advantage.
ANS:
Location advantages arise from the clustering of economic activities in certain locations, referred to as
agglomeration. Agglomeration advantages stem from:
1. Knowledge spillovers among closely located firms that attempt to hire individuals
from competitors.
2. Industry demand that creates a skilled labor force whose members may work for
different firms without having to move out of the region.
3. Industry demand that facilitates a pool of specialized suppliers and buyers also
located in the region.
It is important to recognize that location advantages refer to advantages a firm obtains when operating
in one geographic location due to its firm-specific capabilities. When you consider the resource-based
view, there is evidence that location advantages do not entirely overlap a country-level advantage.
An example is the development of the Freemont, California based automobile plant. GM ran this plant
to the ground, resulting in closure. Then GM and Toyota in a joint venture reopened the facility. The
joint venture leveraged the plant's location advantages by producing award-winning automobiles.
Here, Toyota’s unique capabilities applied to California’s location saved the plant from demise.

4. Differentiate between the radical, the free market and pragmatic nationalism view on FDI.
ANS:
First, the radical view is hostile to FDI. Tracing its roots to Marxism, the radical view treats FDI as an
instrument of imperialism and as a vehicle for exploitation of domestic resources by foreign capitalists
and firms. Governments embracing the radical view often nationalize MNE assets, or simply ban (or
discourage) inbound MNEs. However, the popularity of this view is in decline worldwide, because (1)
economic development in these countries was poor in the absence of FDI, and (2) the few developing
countries (such as Singapore) that embraced FDI attained enviable growth.
On the other hand, the free market view suggests that FDI, unrestricted by government intervention,
will enable countries to tap into their absolute or comparative advantages by specializing in the
production of certain goods and services. Free market-based FDI will lead to a win-win situation for
both home and host countries.
However, in practice, a totally free market view on FDI does not really exist. Most countries practice
pragmatic nationalism—viewing FDI as having both pros and cons and only approving FDI when its
benefits outweigh costs.

5. Identify the benefits and costs of FDI to host countries.
ANS:
The benefits of FDI to host countries:
1) Capital inflow can help improve a host country’s balance of payments.
2) Technology, especially more advanced technology from abroad, can create technology
spillovers that benefit domestic firms and industries.
3) Advanced management know-how may be highly valued. It is often difficult for
indigenous development of management know-how to reach a world-class level in the
absence of FDI.
4) FDI creates jobs, both directly and indirectly.
The three primary costs of FDI to host countries: (1) loss of sovereignty, (2) adverse effects on
competition, and (3) capital outflow.

6. Identify the benefits and costs of FDI to home countries.
ANS:
There are three benefits to home countries:
1) Repatriated earnings of profits from FDI
2) Increased exports of components and services to host countries
3) Learning via FDI from operations abroad
Costs of FDI to home countries primarily center on capital outflow and job loss. Since host countries
enjoy capital inflow because of FDI, home countries suffer from some capital outflow. Less confident
governments (home) may impose capital controls to prevent or minimize FDI flows.
In addition, many MNEs simultaneously invest abroad by adding employment overseas and curtail
domestic production by laying off employees. It is not surprising that politicians, union members, and
social activists in many developed economies have been increasingly vocal in calling for restrictions
on FDI outflows.

7. Describe the process of obsolescing bargain between MNEs and governments.
ANS:
Typically, FDI bargaining is not one-round only. After the initial FDI entry, both sides may continue
to exercise bargaining power. One well-known phenomenon is the obsolescing bargain, referring to the
deal struck by MNEs and host governments, which change their requirements after the initial FDI
entry. It typically unfolds in three rounds:
• In Round One, the MNE and the government negotiate a deal. The MNE usually is not willing to
enter in the absence of some government assurance of property rights and incentives (such as tax
holidays).
• In Round Two, the MNE enters and, if all goes well, earns profits that may become visible.
• In Round Three, the government, often pressured by domestic political groups, may demand
renegotiations of the deal that seems to yield “excessive” profits to the foreign firm (which, of course,
regards these as “fair” and “normal” profits). The previous deal, thus, becomes obsolete. The
government’s tactics include removing incentives, demanding a higher share of profits and taxes, and
even expropriation (confiscating foreign assets).
At this time, the MNE has already invested substantial sums of resources (called sunk costs) and often
has to accommodate some new demands. Otherwise, it may face expropriation or exit at a huge loss.
Not surprisingly, MNEs do not appreciate the risk associated with such obsolescing bargains.

8. What determines the success and failure of FDI around the globe?
ANS:
First, from a resource-based view, some firms are very good at FDI because they leverage ownership,
location, and internalization advantages in a way that is valuable, unique, and hard to imitate by rival
firms. Second, from an institution-based view, the political realities either enable or constrain FDI
from reaching its full economic potential. The successes and failures of FDI significantly depend on
institutions governing FDI as "rules of the game."
1) Carefully assess whether FDI is justified in light of other options such as outsourcing and
licensing.
2) Pay careful attention to the location advantages in combination with the firm's strategic
goals.
3) Be aware of the institutional constraints governing FDI and enhance legitimacy in host
countries.

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38. Papers on the Scots Brigade in Holland, 1572-1782. Edited
by James Ferguson. Vol. iii.
39. The Diary of Andrew Hay of Craignethan, 1659-60. Edited
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40. Negotiations for the Union of England and Scotland in
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41. The Loyall Dissuasive. Written in 1703 by Sir Æneas
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42. The Chartulary of Lindores, 1195-1479. Edited by the Right
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43. A Letter from Mary Queen of Scots to the Duke of Guise,
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Presented to the Society by the family of the late Mr. Scott, of Halkshill.
44. Miscellany of the Scottish History Society, Second
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Edited by Mary Bateson.—The Scottish Nation in the
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The French Garrison at Dunbar, 1563. Robert S. Rait.—De
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L. G. Græme.—A Scottish Journie, 1641. C. H. Firth.—
Narratives illustrating the Duke of Hamilton’s Expedition
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1648-168-. H. C. Foxcroft.—Papers of Robert Erskine,
Physician to Peter the Great, 1677-1720. Rev. Robert Paul.—
Will of the Duchess of Albany, 1789. A. Francis Steuart.
45. Letters of John Cockburn of Ormistoun to his Gardener,
1727-1743. Edited by James Colville, D.Sc.
46. Minute Book of the Managers of the New Mills Cloth
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47. Chronicles of the Frasers; being the Wardlaw Manuscript
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William Mackay.
48. Proceedings of the Justiciary Court from 1661 to 1678.
Vol. i. 1661-1669. Edited by Sheriff Scott-Moncrieff.
49. Proceedings of the Justiciary Court from 1661 to 1678.
Vol. ii. 1669-1678. Edited by Sheriff Scott-Moncrieff.
50. Records of the Baron Court of Stitchill, 1655-1807.
Edited by Clement B. Gunn, M.D., Peebles.
51. Macfarlane’s Geographical Collections. Vol. i. Edited by
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52, 53. Macfarlane’s Geographical Collections. Vols. ii. and iii.
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54. Statuta Ecclesiæ Scoticanæ, 1225-1559. Translated and
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57. A Selection of the Forfeited Estates Papers preserved in
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58. Records of the Commissions of the General Assemblies
(continued), for the years 1650-52. Edited by the Rev. James
Christie, D.D.
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59. Papers relating to the Scots in Poland. Edited by A.
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61. Johnston of Wariston’s Memento Quamdiu Vivas, and
Diary from 1632 to 1639. Edited by G. M. Paul, LL.D., D.K.S.
(May 1911.)
Second Series.
1. The Household Book of Lady Grisell Baillie, 1692-1733.
Edited by R. Scott-Moncrieff, W.S.
(Oct. 1911.)
2. Origins of the ’45 and other Narratives. Edited by W. B.
Blaikie, LL.D.
(March 1916.)
3. Correspondence of James, fourth Earl of Findlater and
first Earl of Seafield, Lord Chancellor of Scotland.
Edited by James Grant, M.A., LL.B.
(March 1912.)
4. Rentale Sancti Andree; being Chamberlain and Granitar
Accounts of the Archbishopric in the time of Cardinal
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Hannay.
(February 1913.)
5. Highland Papers. Vol. i. Edited by J. R. N. Macphail, K.C.
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Vol. i. Edited by C. S. Romanes, C.A.
(November 1914.)
7. Records of the Earldom of Orkney. Edited by J. S.
Clouston.
(December 1914.)
Vol. ii. Edited by C. S. Romanes, C.A.
(January 1915).
9. Selections from the Letter Books of John Steuart, Bailie
of Inverness. Edited by William Mackay, LL.D.
(April 1915.)
10. Rentale Dunkeldense; being the Accounts of the
Chamberlain of the Bishopric of Dunkeld, a.d. 1506-1517.
Edited by R. K. Hannay.
(March 1915.)
11. Letters of the Earl of Seafield and Others, illustrative
of the History of Scotland during the Reign of Queen
Anne. Edited by Professor Hume Brown.
(Nov. 1915.)
12. Highland Papers. Vol. ii. Edited by J. R. N. Macphail, K.C.
(March 1916.)
(Note.—Origins of the ’45, issued for 1909-1910, is
issued also for 1914-1915.)
Vol. iii. Edited by C. S. Romanes, C.A.
14. Johnston of Wariston’s Diary. Vol. ii. Edited by D. Hay
Fleming, LL.D.
In preparation.
Bibliography of Topographical Works relating to Scotland.
Compiled by the late Sir Arthur Mitchell, and edited by C. G.
Cash.
Records relating to the Scottish Armies from 1638 to 1650.
Edited by Professor C. Sanford Terry.
Seafield Correspondence. Vol. ii. Edited by Major James Grant.
Register of the Consultations of the Ministers of
Edinburgh, and some other Brethren of the Ministry,
since the interruption of the Assembly 1653, with other
Papers of public concernment. Edited by the Rev. W.
Stephen, B.D.
Miscellany of the Scottish History Society. Third Volume.
Charters and Documents relating to the Grey Friars and
the Cistercian Nunnery of Haddington.—Register of
Inchcolm Monastery. Edited by J. G. Wallace-James, M.B.
Analytical Catalogue of the Wodrow Collection of
Manuscripts in the Advocates’ Library. Edited by J. T.
Clark.
A Translation of the Historia Abbatum de Kynlos of
Ferrerius.
Papers relating to the Rebellions of 1715 and 1745, with other
documents from the Municipal Archives of the City of Perth.
The Balcarres Papers.
Transcriber’s Notes
Obvious typographical errors have been silently corrected. Variations in
hyphenation and accents have been standardised but all other spelling and
punctuation remains unchanged.
The Corrigenda and Errata (page vi) have been corrected in place.
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ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Moderate

ANS: F PTS: 1 DIF: Difficulty: Moderate

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

7. In order to become an MNE, an exporter has to undertake FDI.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

15. Compared to licensing, FDI increases dissemination risks.

ANS: F PTS: 1 DIF: Difficulty: Moderate

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

18. Economic agglomeration is an example of an OLI advantage.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

20. Oligopoly happens when an industry is dominated by one company.

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

22. Internalization can help reduce opportunistic behavior in international trade.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

24. Intrafirm trade enables MNEs to better coordinate cross-border activities.

ANS: T PTS: 1 DIF: Difficulty: Easy

25. The radical view treats FDIs as an instrument of imperialism.

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

28. Technology spillovers are harmful to host firms and industries.

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

32. An FDI investment is not considered a zero-sum game.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

1. FPI refers to the _____.

4. A vertical FDI refers to a type of FDI in which _____.

9. OLI advantages refer to a firm’s quest for _____via FDI.

14. Firms prefer FDI to licensing because FDI_____.

17. _____ refers to the clustering of economic activities in certain locations.

18. Knowledge spillover refers to _____.

19. A(n) _____ refers to an industry dominated by a small number of players.

27. Which of the following is a primary cost of FDI to host countries?

28. Which of the following is a benefit of FDI to home countries?

29. Which of the following is a primary cost of FDI to home countries?

33. Government’s confiscation of foreign assets is known as _____.

35. Which of the following statements best describes an FDI?

PTS: 1 DIF: Difficulty: Moderate REF: p. 39

2. Why do firms prefer FDI to licensing?