A. Match the following words to make collocations from the text

B. Paraphrase the collocations from the text:

1) the empirical evidence that FDI promotes national income growth is “encouraging rather than compelling (para 1)

2) well-enforced property rights (para 3)

3) equitable distribution of income (para 4)

4) owners will not easily pull the plug (para 6)

5) profits can be affected by transfer price manipulation (para 7)

6) technology and skill transfer takes place through a general raising of competitive pressure manipulation (para 8)

7) an export-oriented foreign-owned entity can improve the balance of payments and capital account of a nation (para 13)

8) local firms run the risk to be decimated by the competition from MNCs (para 15)

9) the Bolivian government reversed the privatization (para 17)

10) MNCs, due to their higher profile, may be more sensitive to environmental issues than local firms (para 18).

C. In pairs, discuss the following issues:

§ tax revenues as a strong incentive for government encouragement of FDI

§ risks of a country becoming too reliant on FDI

§ cases when the FDI deserves additional scrutiny

§ a primary “negative spillover” from FDI

§ the worst-case scenario of FDI.

Assignment 6. Small group discussion on the benefits and drawbacks of investing in a particular industry. One member of the group acts as a company’s CEO (Chief Executive Officer), the others represent his/her deputies with opposing opinions.

Assignment 7. Press Conference. Break into 2−3 groups. Each group contains 1−2 journalists and several business executives who are going to invest in foreign enterprises. Questions and Issues for Journalists might be as follows:

1. Will the foreign-owned entity be export-oriented, or will it sell locally? (Export-oriented firms generally have the advantage of generating hard-currency income for the host country. Also they tend to compete less directly with local firms, which may lessen negative economic spillover.)

2. Will the foreign-owned entity compete with local firms? (This is a complex issue, because often competition leads to increased productivity and higher national income. But, if the local firms are significant employers or otherwise economically or socially important, displacement of these firms by MNCs can have significant short-term negative effects. Also investigate whether the MNC will compete with local firms for skilled labor, which might have the effect of raising labor costs for local firms.)

3. Will the foreign-owned entity buy from or sell to local firms? (The more closely an MNC works with local suppliers, the more likely the transfer of technical and management skills will occur. This is in addition to the expected increase in revenue to local firms. If the MNC sells to local firms, especially in cases where the input was previously imported, local costs of production may decrease.)

4. Is the government offering incentives? What kinds? What are the anticipated costs? (Some governments have let themselves be pulled into bidding wars, especially for high-profile investments such as auto plants. If these incentives are too generous, a country and its economy can experience a net loss from the investment. Governments often will not publicize these incentives, but they deserve public examination.)

5. Will the MNC become sole provider of an essential public good such as water or electricity? (If this is the case, the social environment may become an issue, especially if the MNC is expected to raise prices. Journalists should investigate whether any service or pricing guarantees are offered, and if not, whether there are any other countervailing controls in place to protect the public interest.)

6. Is the over-all level of foreign ownership sustainable? (There are no clear guidelines as to how much foreign ownership is too much. At some point, though, there may develop a risk of “decapitalization”, where repatriating of capital by foreign owners becomes excessive.)

2.2. INVESTMENT RISKS AND HOW TO OVERCOME THEM: