Chapter 8: Multinational Corporations in the Global Economy

Multiple Choice Questions

Multinational corporations (MNCs) are a)not the primary drivers of and beneficiaries from globalization. b)the primary drivers of but not the beneficiaries from globalization. c)the primary drivers of and beneficiaries from globalization. d)the beneficiaries from globalization but not its primary drivers. e)a recent invention.

Answer: c

Since 1969, the number of firms engaged in international production as increased a) from 5,300 to 90,000 in 2010. b)from 6,300 to 120,000 in 2010. c)from 7,300 to 150,000 in 2010. d)from 4,300 to 100,000 in 2010. e)from 7,300 to 100,000 in 2010.

Answer: e

A national company becomes an MNC when it a)places multiple production facilities in multiple countries under the control of a single corporate structure. b)places multiple production facilities in multiple countries under the control of multiple corporate structures. c)uses foreign workers in multiple countries under the control of a single corporate structure. d)Pays taxes in multiple countries. e)places multiple production facilities in a single country under the control of multiple corporate structures.

Answer: a a) Microsoft b) AT&T c) Exxon-Mobil d) Ford e)General Electric

4. According to Oatley, the U.S.-based company is regularly ranked among the world’s largest MNCs. It controls some 250 plants located in 26 countries in North and South America, Europe, and Asia.

Answer: e

5.According to UNCTD figures in the Oatley book, the world’s stock of FDI, the total amount of foreign investment in operation, has grown from a)$693 billion in 1980 to $36.5 trillion at the end of 2019. b)$593 billion in 1980 to $31.5 trillion at the end of 2019. c)$693 billion in 1980 to $29.5 trillion at the end of 2019. d)$493 billion in 1980 to $36.5 trillion at the end of 2019. e)$693 billion in 1980 to $40.5 trillion at the end of 2019

Answer: a

6.According to Table 8.3 in the Oatley book, the region of the world with the highest foreign direct investment inflows in 1990-2019 was a)Europe. b)North America. c)Southeast Asia. d)Latin America. e)Africa.

Answer: a

7.According to the Oatley book, the United Nations (UN) estimates that MNCs currently (2019) a)account for 1/4 of global exports and employ some 77 million people worldwide. b)account for 1/3 of global exports and employ some 82 million people worldwide. c)account for 1/3 of global exports and employ some 107 million people worldwide. d)account for ½ of global exports and employ some 107 million people worldwide. e)account for ½ of global exports and employ some 82 million people worldwide.

Answer: e

8.In 2020, developing countries accounted for about a)7 of top 100 MNC parent corporations. b)11 of top 100 MNC parent corporations. c)13 of top 100 MNC parent corporations. d)15 of top 100 MNC parent corporations. e)17 of top 100 MNC parent corporations.

Answer: b

9.MNC investment in the developing world has increased during the last 30 years, a)but the majority of this investment has been concentrated in a very few number of developing countries. b)and the majority of this investment has been spread out among many developing countries. c)and the majority of this investment has gone to the Middle East. d)and the majority of this investment has gone to the Africa. e)and the majority of this investment has gone to Asia.

Answer: a

10.According to their critics, the ability of MNCs to move production wherever they want is gradually eroding a broad range of government regulations designed to a)protect corporate profits and workers. b)protect workers, consumers, but not the environment. c)protect foreign workers and social diversity. d)protect workers, consumers, and the environment. e)protect consumers and the environment but not union workers.

Answer: d

11.Falling trade barriers and improvements in communications technology have made a)it substantially harder for firms to internationalize their activities. b)it substantially easier for firms to internationalize their activities. c)very little difference for firms wishing to internationalize their activities. d)it more likely for MNCs to systematically exploit workers worldwide. e)it easier for MNCs to avoid paying taxes on their international activities.

Answer: b

12.Locational advantages are based on which combination of the following specific country characteristics: a)a large reserve of natural resources, a large local market and efficiency opportunities. b)a small reserve of natural resources, a large local market and efficiency opportunities. c)a small reserve of natural resources, a small local market and efficiency opportunities. d)a large reserve of natural resources, a small local market and efficiency opportunities. e)a small reserve of natural resources, a large local market but few efficiency opportunities.

Answer: a

13.According to Oatley, in 2016 the top industrial sector of the largest MNCs was in a)electronics b)petroleum/mining. c)pharmaceuticals d)telecommunications. e)automobiles.

Answer: b

14.Locational advantages for market-oriented investments are based on the ideal combination of a)small fast growing markets, large number of indigenous firms in that industry and tariff/nontariff barriers. b)large fast growing markets, small number of indigenous firms in that industry and no tariff/nontariff barriers. c)large fast growing markets, small number of indigenous firms in that industry and tariff/nontariff barriers. d)large fast growing markets, large number of indigenous firms in that industry and no tariff/nontariff barriers. e)large slow growing markets, small number of indigenous firms in that industry and tariff/nontariff barriers.

Answer: c

15. Horizontal integration occurs when a a)firm creates singular country production facilities, each of which produces different good or goods. b)firm creates multiple production facilities, each of which produces the same good or goods. c)firm creates multiple production facilities, each of which produces different good or goods. d)firm creates singular country facilities, each of which produces the same good or goods. e)firm creates multiple production facilities, in multiple countries but with different technologies.

Answer: b

16.Intangible assets are a)not very important when cost advantages arise from horizontal administrative integration. b)something whose value is not very important. c)assets whose value is derived from locational advantages that are crucial to the production in a particular industry. d)assets that are easy to sell or license to other firms at a price that accurately reflects their true value. e)assets that are difficult to sell or license to other firms at a price that accurately reflects their true value.

Answer: e

17.Specific assets

a)are investments that are part of a general economic relationship.

b)are investments that are dedicated to a particular short-term economic relationship.

c)are investments that are dedicated to a particular long-term economic relationship.

d)are assets whose value is derived from locational advantages that are crucial to the production in a particular industry.

e)are assets that create incentives for horizontal integration because they make it easier to write and enforce contracts.

Answer: c

18.We expect to find the most amount of MNC activity when a)locational advantages exist, but there are neither intangible nor specific assets. b)no locational advantages exist, but there are intangible and specific assets. c)no locational advantages exist, and there are neither intangible nor specific assets. d)locational advantages exist, and there are both intangible and specific assets. e)there are vertically integrated intangible assets.

Answer: d

19.Foreign investment

a)allows a country only to grow when it does not compete with its domestic savings.

b)allows a country to enjoy faster growth than would be possible if it were forced to rely solely on its domestic savings.

c)only allows as much growth as desired by foreign management.

d)usually replaces domestic savings leading to excessive external indebtedness.

e)is usually the least stable and most burdensome for host countries.

Answer: b

20.Positive externalities arise when a)economic actors in the host country that are directly involved in the transfer of technology from a MNC to a local affiliate do not benefit from this transaction. b)economic actors in the host country that are not directly involved in the transfer of technology from a MNC to a local affiliate do not benefit from this transaction. c)economic actors in the home country that are directly involved in the transfer of technology from a local affiliate to a MNC also benefit from this transaction. d)economic actors in the home country that are not directly involved in the transfer of technology from a local affiliate to a MNC do not benefit from this transaction. e)economic actors in the host country that are not directly involved in the transfer of technology from a MNC to a local affiliate also benefit from this transaction.

Answer: e

21.When foreign direct investments are made part of a global production network such integration a) insures that import opportunities will not be available to indigenous producers. b) insures that MNCs will reduce the amount of funds available for investments in the host country. c) insures that revenues generated by the local affiliate will not be used to enhance the welfare of the host country. d) creates export opportunities that would be otherwise unavailable to indigenous producers. e) guarantees that technology will not eventually be transferred to the host country.

Answer: d

22.Many MNCs have opted to remove many of their international transactions from the market and place them within a single corporate structure because a)they are usually required to by the host country governments. b)they are usually required to by the home country governments. c)they can usually earn substantially higher incomes by internalizing intangible and specific assets. d)they will not be held accountable for raising the general welfare of their host countries. e)this helps them stay clear of intrusive host government regulations.

Answer: c

23. Workers tend to have more rights and labor abuses are less frequent as a) the skill-level of the industry increases. b) the skill-level of the industry decreases. c) the skill-level of the industry does not change. d) skill-level of the industry becomes more urban. e) skill-level of the industry becomes more indigenous.

Answer: c

24. Which of the following is probably NOT true? A MNC might a) consume scarce local savings. b) replace local firms. c) refuse to transfer technology. d) and repatriate all of its earnings. e) extend local. managerial control.

Answer: e

25. Most analysts of MNC activities believe that FDI a) can benefit the host country and the investing firm. b) can benefit the investing firm but seldom the host country. c) usually does not benefit the host country and the investing firm. d) creates a lot of host country debt. e) usually increases the skill level of women workers.

Answer: a

True-False Questions

1.Multinational corporations (MNCs) highlight the tensions inherent in an economy that is increasingly organized along global lines and political systems that continue to reflect exclusive national territories.

Answer: True

2.MNCs started as British creations that first appeared shortly before WW I.

Answer: False

3.In the last forty years, the number of firms engaged in international production has increased about tenfold.

Answer: False

4.Although MNCs have a global reach, their activities are overwhelmingly concentrated in the advanced industrial countries.

Answer: True

5.During the last decade, Nigeria has received the largest share of these investment flows, capturing 30 percent of the total inflows over the period.

Answer: False

6. In 2020, only eleven developing-country MNCs ranked among the world’s 100 largest MNCs.

Answer: True

7.According to Oatley, the prevalence and organization of MNCs is puzzling to neoclassical economists.

Answer: True

8.Locational advantages for market-oriented investments arise from the presence of large deposits of a particular natural resource in a foreign country.

Answer: False

9.Locational advantages in efficiency-oriented investments arise from the availability at a lower cost of the factors of production that are used intensely in the production of a specific product.

Answer: True

10.Vertical integration refers to instances in which firms internalize their transactions for intermediate goods.

Answer: True