International Economics

Study Guide

Chapter 9

1. Define direct foreign investment (DFI).



2. What is the overall motivation for corporations to establish a foreign subsidiary? List some of the individual factors that induce companies to invest abroad (i.e., cost considerations and revenue enhancements).



3. Does the economic interest of a U.S. company investing abroad in manufacturing subsidiaries coincide with the interest of the United States? If not, in what ways do the interests diverge? Why does the U.S. labor movement object to foreign investment by U.S. companies?



4. How are foreign subsidiaries of U.S. companies taxed?



5. What are transfer prices and how are they affected by differential taxation and tariffs?



6. Examine the effects of direct foreign investment on the welfare of (a) the source country, (b) the host country, and © the world as a whole



7. What are the effects of labor migration on (a) the world as a whole, (b) the host country, © the source country, and (d) labor in the two countries?