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51 Cards in this Set
- Front
- Back
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Gross Fixed Capital Formation
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Summary of total invested in factories, stores, office buildings, etc.
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Eclectic Paradigm of FDI
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Location specific advantages
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Radical View of FDI
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Tool of Foreign imperialist domination Very common opinion of russia, china, cuba
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Free market View of FDI
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countries should specialize in what they have advantages in
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FDI Host Country Benefits
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Resource transfers effects
Employments effects balance of payment effects effect on competition and growth |
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FDI - Host Country costs
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Adverse effect on competition
adverse effect on balance of payment national sovereignty & autonomy |
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FDI - Home country benefits
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Balance of payments
employment effects learn skills form foreign market |
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FDI - Home country cost
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Balance of payments - outflow of setup capital
BOP - if foreign operation is to be low cost country, BOP - if FDI is substitute for export. Substitute for domestic production |
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offshore production
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stimulates home country to specialize in what they do better
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home country encourage outward fdi
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insurance programs- nationalization, war.
funds and cheap loans persuade foreign countries to lower fdi barriers |
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home country discourage outward fdi
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desire to limit bop
limit amount of capital you can take out of home country. taxes formal or informal prohibition- Cuba, apartheid |
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host country encourage inward fdi
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lower taxes, loans, grants, subsidies - to lure fdi away from other host countries
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host country discourage inward fdi
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ownership restraints-excluded form certain sectors and performance requirements
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Levels of regional economic integration
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free trade area
customs union common market economic union political union |
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Free trade area
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all barriers to trade of goods and service removed, no tariffs quotas. Members free to determine their own trade policies with non members
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customs union
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fta plus common external trade policy
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common market
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cu plus allows factors of production to move freely between members. immigration, emigration, capital flow across borders.
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economic union
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cm plus common currency, harmonization of tax rate and common monetary and fiscal policy
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political union
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eu plus central political apparatus coordinates economic, social, and foreign policy of all member states
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mercosur
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Argentina, Brazil, Paraguay, Uruguay & Venezuela.
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trade creation
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high cost domestic producers replaced by low cost external producers
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benefits of euro
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savings with one currency
easier to compare prices encourage efficiency boost pan europe markey increasde investmoent opprotunities |
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costs of euro
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countries lose control of monetary policy
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forward exchange
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two parties agree to exchange currency at a future date at a set exchange rate
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currency swap
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simulataneous purchase and sale of currency for 2 dates
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law of one price
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things being equal, identical products must cost the same
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ppp theory
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print more money means greater inflation. inflation means depreciation in exchange rate
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fischer effect
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nominal interest =real interest plus inflation
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interational fischer effect
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exchange rates btw 2 countries inversely proportional to changes in relative interest rates
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fundamental analysis
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uses economic theory to create fx rate predictions
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technical analysis
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uses price and volume data to show trends whaich are expected to continue
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countertrade
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when one or more companies is dealing with non covnertable currency, they trade, barter-like
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case for floating exchange rates
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country expands or contracts money supply as it sees fit
removes obligation of exchange rate parity floatingexchange rate handles big bop deficit better |
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case for fixed exchange rates
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prevents govt's from spending too frivolously
predictable, removes risk from import, export protect bop gains by preventing inflation |
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currency board
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country commits on exchanign its currency with others at fixed rates. must hold reserves - can only issue money backed by foreign reserves. limits inflation
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imf criticisms
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inapproriate policies - tight macro policies
moral hazard lack of accountability |
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basic entry decision
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whcih markets, when to enter, on what scale
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timing of entry
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first mover advantages, pioneering costs, strategic commitments
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entry modes
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exporting
turnkey projects licensing franchising joint ventures wholly owned subsidiaries |
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exporting adv
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location and experience economies
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exporting disadvantage
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high transport costs
trade barriers problems with local marketing agents |
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turnkey advantages
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ability to earn returns from technology skills where fdi is restricted
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turnkey disadvantage
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create your own efficient competitor
lack of long term presence |
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licensing advantage
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low development costs and risks
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licensing disadvantages
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lack of control over technology
lack of location and experience economies hinders global strategic coordination |
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franchising advantages
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low development costs and risks
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franchising disadvantages
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lack of control of quality
hinders global strategic coordination |
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joint venture advantages
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access to local partner knowledge
sharing costs and risks polically acceptable |
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joint venture disadvantages
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lack of control over technology
hinders global strategic coordination inability to realize location an experience economies |
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wholly owned advantages
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protection of technology
ability to do global strategy ability ot relaize location and experience economies |
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wholly owned disadvantages
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high costs and risks
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