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33 Cards in this Set
- Front
- Back
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Foreign direct Investment
FDI |
Purchase of physical assets on significant amount of ownership of a company in another country to gain some measure of management control
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Portfolio Investment
PI |
Economic and political integration whereby countries coordinate aspects of their economic and political system
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International Product Life Cycle
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a company will begin by exporting its product and later undertake foreign direct investment as the product moves through its life cycle
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Market Imperfections
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when an imperfection in the market makes a transaction less efficient than it could be, company will undertake foreign direct investment to internalize the transaction and thereby remove the imperfection
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Difference between FDI and PI
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ability to influence investment
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FDI is used for
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by companies to become global, opportunities, protect your market share, and for not having trade barriers anymore. (Example of trade b.: Toyota moved from Japan to Tennessee)
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Electic theory
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A firm undertakes FDI when location ownership and internalization
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1. Location advantage
2. Ownership advantage 3. Internalization advantage |
1. Optimal location (ex: products are cheaper, material advantage)
2. special asset 3. not wanting to buy because you know you can do it more efficient and cheaper |
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Market Power
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Firm undertakes FDI to establish a dominant presence in an industry
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Vertical Integration
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Extends company’s activities into stages of production that provide its inputs (backward integration) on absorb its outputs (forward integration)
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When economy grows, who grows with it?
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FDI grows with it!!!
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Management issues and FDI
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1. Control partnership requirements and benefits of corporation
2. Purchase – or – build decisions (if you buy an existing company: you have the benefit of knowing the market and having loyal clients already) 3. Production costs (nationalized production and cost of R&D) 4. Costumer knowledge 5. Following clients 6. Following rivals |
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Rationalized Production
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System of production in which each of a product’s components is produced where the cost of producing that component is lowest
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Balance of Payments
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National accounting system that records all payments to entities in other countries and all receipts coming into the nation
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Current Account
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National account that records transactions involving the import and export of goods and services, income receipts on assets abroad, and income payments on foreign assets inside the country
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Capital account
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National account that records transactions involving the purchase or sale of assets
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Current Account Surplus
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When a country exports more goods and services, and receives more income from abroad than it imports and pays abroad
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Current Account Deficit
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When a country imports more goods and services and pays more abroad than it exports and receives from abroad
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Reasons for Intervention by the Host country
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1. Control balance of payments
2. Obtain resources and benefits |
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Regional Economic integration (regionalism)
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Process whereby countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products, people, or capital
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5 Different levels of integration
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1. Free Trade Area
2. Custom Union 3. Common Market 4. Economic Union 5. Political Union |
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Free Trade Area
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Economic integration whereby countries seek to remove all barriers to trade among themselves, but each country determines its own barriers against themselves
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Customs Union
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Economic integration whereby countries remove all barriers to trade among themselves but erect a common trade policy against nonmembers
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Common Market
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Economic integration whereby countries remove all barriers to trade and the movement of labor and capital among themselves but erect a common trade policy against nonmembers
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Economic Union
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Economic integration whereby countries remove barriers to trade and the movement of labor and capital among members, erect a common trade policy against nonmenbers, and coordinate their economic policies
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Political Union
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Economic and political integration whereby countries coordinate aspects of their economic and political system
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Trade Creation
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Increase in the level of trade between nations that results from regional economic integration
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Trade Diversion
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Diversion of trade away from nations not belonging to a trading bloc and toward member nations
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US
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one currency, one policy, each state has one jurisdiction
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Effects of integration
Potential benefits (4): |
1. Trade Creation
2. Greater Consensus 3. Political Cooperation 4. Create Jobs |
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Effects of integration
Potential drawbacks (3): |
1. Trade diversion
2. Shifts in employment 3. Loss of sovereignty |
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Five key EU institutions
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1. European parliament
2. Court of justice 3. Court of auditors 4. Council of the EU 5. European Commission |
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NAFTA Effects
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1. Three-nation trade flows
2. Jobs and wages 3. “Fast Track” authority 4. Future expansion? 5. Single currency? |
