Question

Home countries can adopt policies designed to both encourage and restrict FDI. Host countries try to attract FDI by offering incentives and try to restrict FDI by dictating ownership restraints and requiring that foreign multinational enterprises (MNE) meet specific performance requirements.
Determine whether the scenario represents a benefit or cost to the home or cost country, and then match it to the appropriate place.

a. Outflow of earnings from a foreign subsidiary
b. Loss of jobs
c. Host country limits profit expatriation
d. Transfer of new technology
e. Loss of local entrepreneurship


1. Host-country benefit
2. Home-country benefit
3. Host-country cost
4. Home-country cost

Answer 1

Answer:

Determining whether the scenario represents a benefit or cost to the home or host country, and then matching it to the appropriate place:

a. Outflow of earnings from a foreign subsidiary

Host-country cost

Home-country benefit

b. Loss of jobs

Home-country cost

Home-country benefit

c. Host country limits profit expatriation

Host-country benefit

Home-country cost

d. Transfer of new technology

Host-country benefit

Home-country cost

e. Loss of local entrepreneurship

Host-country cost

Home-country benefit

Explanation:

a) Data:

1. Host-country benefit

2. Home-country benefit

3. Host-country cost

4. Home-country cost

b) Foreign Direct Investments (FDI) are beneficial to the host country in many ways.  Some of the established benefits are economic growth stimulation, increased human resource development, transfer of finance and technology, and increased exports.  However, these benefits do not come without some costs.  Human and natural resources may be exploited without noticeable improvements.  Others include hindrance of domestic investments and entrepreneurship, risk of political changes, and negative influence of exchange rates.