Question 1

Which of the following is a direct consequence of the interdependence between firms in an oligopoly?

Accepted Answer

A)   Increased regulation
B)   Increased consumer welfare
C)   Imitative behavior
D)   Longer product life-cycles

Question 2

A country's balance of payments accounts keep track of both its payments to and its receipts from other countries.

Accepted Answer

A) True 
 B)False

Question 3

FDI has been declining in the last few decades because protectionist pressures have become less intense.

Accepted Answer

A) True 
 B)False

Question 4

As transportation costs or trade barriers increase,exporting becomes unprofitable,compared to FDI and licensing.

Accepted Answer

A) True 
 B)False

Question 5

Knickerbocker's theory explains why the first firm in an oligopoly decides to undertake FDI rather than to export or license.

Accepted Answer

A) True 
 B)False

Question 6

Describe the situations when licensing is not a good option for a firm.

Accepted Answer

Licensing is not a good option in three ...

Question 7

Offshore production refers to FDI undertaken to serve the host market.

Accepted Answer

A) True 
 B)False

Question 8

The product life-cycle theory and Knickerbocker's theory of horizontal FDI tend to be very useful from a business perspective because the theories are more descriptive than analytical.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following observations concerning Knickerbocker's theory is true?

Accepted Answer

A)   It does not explain imitative FDI behavior by firms in oligopolistic industries.
B)   Economists favor this theory as an explanation for FDI compared to the internalization theory.
C)   It addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad.
D)   It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.

Question 10

Which of the following is a major drawback of using the product life-cycle theory in explaining FDI?

Accepted Answer

A)   It ignores the fact that firms invest in a foreign country when demand in that country will support local production.
B)   It does not explain why firms invest in developing countries when cost pressures become intense.
C)   It fails to identify when it is profitable to invest abroad.
D)   It ignores the fact that licensing as an entry strategy has its limitations.

Question 11

Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs.

Accepted Answer

A) True 
 B)False

Question 12

According to the pragmatic nationalistic view,the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

Accepted Answer

A) True 
 B)False

Question 13

The free market view argues that FDI is a benefit to both the source country and to the host country.

Accepted Answer

A) True 
 B)False

Question 14

Discuss the reasons for the growth in FDI over the last 30 years.

Accepted Answer

FDI has grown more rapidly than world tr...

Question 15

According to Knickerbocker's theory:

Accepted Answer

A)   when a firm has valuable know-how that cannot be adequately protected by a licensing contract it engages in FDI.
B)   when a firm's skills and know-how are not amenable to licensing, it usually prefers the FDI route.
C)   by placing tariffs on imported goods, governments indirectly increase the cost of exporting relative to foreign direct investment and licensing.
D)   when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments.

Question 16

Explain the product life-cycle theory and its connection with FDI.

Accepted Answer

The product life-cycle theory,developed ...

Question 17

What are location-specific advantages? How do they help explain FDI?

Accepted Answer

Location-specific advantages are advanta...

Question 18

Which of the following summarizes the total amount of resources invested in factories,stores,office buildings,and the like?

Accepted Answer

A)   Gross capital index
B)   Gross fixed capital formation
C)   Gross domestic product
D)   Gross national product

Question 19

What is a greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more likely choose? Explain your answer.

Accepted Answer

FDI can take the form of a greenfield in...

Question 20

Other things being equal,the greater the capital investment in an economy,the more favorable its future growth prospects are likely to be.

Accepted Answer

A) True 
 B)False

Exam 8: Foreign Direct Investment

FDI has been declining in the last few decades because protectionist pressures have become less intense.

Correct AnswerverifiedShow Answer

Offshore production refers to FDI undertaken to serve the host market.

Correct AnswerverifiedShow Answer

Explain the product life-cycle theory and its connection with FDI.

Correct AnswerverifiedThe product life-cycle theory,developed ...View AnswerShow Answer

What is a greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more likely choose? Explain your answer.

Correct AnswerverifiedFDI can take the form of a greenfield in...View AnswerShow Answer

Which of the following is a direct consequence of the interdependence between firms in an oligopoly?

Correct AnswerverifiedShow Answer

The free market view argues that FDI is a benefit to both the source country and to the host country.

Correct AnswerverifiedShow Answer

Which of the following is a major drawback of using the product life-cycle theory in explaining FDI?

Correct AnswerverifiedShow Answer

Describe the situations when licensing is not a good option for a firm.

Correct AnswerverifiedLicensing is not a good option in three ...View AnswerShow Answer

Discuss the reasons for the growth in FDI over the last 30 years.

Correct AnswerverifiedFDI has grown more rapidly than world tr...View AnswerShow Answer

As transportation costs or trade barriers increase,exporting becomes unprofitable,compared to FDI and licensing.

Correct AnswerverifiedShow Answer

A country's balance of payments accounts keep track of both its payments to and its receipts from other countries.

Correct AnswerverifiedShow Answer

According to the pragmatic nationalistic view,the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

Correct AnswerverifiedShow Answer

Knickerbocker's theory explains why the first firm in an oligopoly decides to undertake FDI rather than to export or license.

Correct AnswerverifiedShow Answer

The product life-cycle theory and Knickerbocker's theory of horizontal FDI tend to be very useful from a business perspective because the theories are more descriptive than analytical.

Correct AnswerverifiedShow Answer

Which of the following summarizes the total amount of resources invested in factories,stores,office buildings,and the like?

Correct AnswerverifiedShow Answer

Other things being equal,the greater the capital investment in an economy,the more favorable its future growth prospects are likely to be.

Correct AnswerverifiedShow Answer

According to Knickerbocker's theory:

Correct AnswerverifiedShow Answer

Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs.

Correct AnswerverifiedShow Answer

What are location-specific advantages? How do they help explain FDI?

Correct AnswerverifiedLocation-specific advantages are advanta...View AnswerShow Answer

Which of the following observations concerning Knickerbocker's theory is true?

Correct AnswerverifiedShow Answer

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The product life-cycle theory,developed ...
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FDI can take the form of a greenfield in...
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Correct Answer
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Licensing is not a good option in three ...
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FDI has grown more rapidly than world tr...
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Correct Answer
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Location-specific advantages are advanta...
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Correct Answer
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