Exam Prep Ch.5 Buckley The institutional dimension

Chapter 5

Test Bank

Type: multiple choice question

Title: Chapter 05 Question 01

1) What is the meaning of most favoured nation?

Feedback: Under the Most favoured nation (MFN) rule, a member state of the WTO has to give all other member states the same trade and investment provision as it negotiated with the ‘most favoured nation’.

A-head reference: 5.2 Institutional theory

a. Most favoured nation is the nation that receives most exports from another economy

b. Most favoured nation is the nation that is allowed to acquire most businesses in another country in any given year.

c. Most favoured nation is rule under the WTO which requires members to lower or remove their trade barriers.

d. Most favoured nation is a title given to the country that wins most trade disputes with the WTO.

Type: multiple choice question

Title: Chapter 05 Question 02

2) Where do social networks like guanxi and blat fit into institutional theory?

Feedback: Guanxi, blat, jeithinho and other such networks are culturally specific and have emerged through locally specific customs and traditions. They are therefore fittings into the cultural-cognitive pillar of the organisational institutional theory.

A-head reference: 5.2 Institutional theory

a. Social networks are part of how countries work, hence they are part of the regulative pillar.

b. Social networks do not fit neither into economic nor organisational institutional theory.

c. Social networks cannot be captured by the institutional theory.

d. Social networks are culturally specific; hence they are part of the cultural-cognitive pillar.

Type: multiple choice question

Title: Chapter 05 Question 03

3) What is the purpose and function of export-processing zones (EPZs)?

Feedback: EPZs are common features in most countries to attract foreign investors. The most well-known EPZs are probably located in China and Mexico. Foreign investors can locate manufacturing facilities in these zones and benefit from local labour while often not being exposed to the same regulations as the rest of the country and/or not being able to trade outside the EPZ.

A-head reference: 5.3 Domestic laws and regulations

a. Any business that seeks to export needs to be located in this zone.

b. EPZs are specially created industrial districts to attract foreign investors. They are adding value to goods before re-exported them.

c. Any good has to be processed and readied for export in this zone.

d. EPZs are specially created industrial districts to attract foreign investors. They are engaging in R&D in these zones.

Type: multiple choice question

Title: Chapter 05 Question 04

4) When a government creates ‘strategic’ or ‘pillar’ industries, what is the impact on foreign investors?

Feedback: Government are often declaring sensitive industries like defence and telecommunication as ‘strategic’ or a ‘pillar’ of the economy. Because these industries are regarded as critical for the development of the economy the access to foreign investment is often restricted and can be prohibited.

A-head reference: 5.4 Supranational institutions and their regulatory impact

a. Foreign investors can benefit from preferential treatment if they operate in the same industry sector.

b. Foreign investors can be excluded from investing in these sectors because they are considered core and sensitive to the economy.

c. It is just a label and has not negative or positive impact on foreign investors.

d. The government seeks to develop these sectors and is courting foreign investors.

Type: multiple choice question

Title: Chapter 05 Question 05

5) Is the institutional screening of inward FDI is barrier to investment?

Feedback: Organisations are established for the purpose of screening and scrutinising inward FDI on their objectives and fit with the local economy. Foreign investors how are likely to be screened, or think they may be targeted, may be reluctant to follow through with their invest intention when another country is a similarly good investment location. Screening bodies like CIFUS are something considered to be discriminating against investors from particular countries.

A-head reference: 5.3 Domestic laws and regulations

a. No, it is not. Sovereign states have the right to know who is investing in their country.

b. Yes, it can be a barrier. Potential investors will take the length of the screening and the potential public scrutiny under considering when assessing if they are welcome or not in the host country.

c. No, it is not. Every country is screening and this is just levelling the playing field.

d. Yes, it is. Countries use screening to cherry-pick the best foreign investor. Smaller investors are discriminated by these processes.

Type: multiple choice question

Title: Chapter 05 Question 06

6) What is the term ‘institutional distance’ describing?

Feedback: Countries have different institutional arrangements. Institutional distance captures how far apart the institutional environments is. Understanding the degree of institutional distance, and what causes it, is helpful for internationally operating firms as they adjust their operations for a foreign market.

A-head reference: 5.3 Domestic laws and regulations

a. Institutional distance is the distance between two governmental agencies.

b. Institutional distance is the distance between the normative and the regulatory pillar of institutional theory.

c. Institutional distance describes the distance between formal and informal institutions.

d. Institutional distance describes the distance between two countries with respect to their regulatory, normative, and cognitive environments.

Type: multiple choice question

Title: Chapter 05 Question 07

7) Which countries are full members of Mercosur?

Feedback: Argentina, Brazil, Paraguay, and Uruguay established Mercosur in 1991. Venezuela joined in 2012 but was suspended in 2017. Countries of the Andean Community of Nations are associated members.

A-head reference: 5.4 Supranational institutions and their regulatory impact

a. Argentina, Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay

b. Argentina, Brazil, Chile, and Uruguay.

c. Argentina, Brazil, Paraguay, and Uruguay.

d. Argentina, Chile, Paraguay, and Uruguay

Type: multiple choice question

Title: Chapter 05 Question 08

8) What is the purpose of international investment agreements (IIAs)

Feedback: IIAs are signed between countries and aim to provide investment assurance and protection for foreign firms. UNCTAD’s Investment Policy Hub has statistics on IIAs as well as templates.

A-head reference: 5.3 Domestic laws and regulations

a. IIAs are signed between countries and aim to provide investment assurance and protection for foreign firms.

b. IIAs are signed between a country and an MNE. They are unilateral assurances from the country to the MNE.

c. IIAs are signed between a country and an MNE. They are unilateral assurances by the MNE that it will adhere to all local laws.

d. IIAs are a different name for an agreement to invest in another country.

Type: multiple choice question

Title: Chapter 05 Question 09

9) What is the objective and activities of UN?

Feedback: The UN, established in 1945, is an overarching organization with very diverse activities supported through a structure based on various subgroups. The goal of the UN is to guarantee security and peace around the world by means of economic prosperity, environmental sustainability, and peacekeeping missions.

A-head reference: 5.4 Supranational institutions and their regulatory impact

a. The UN is a local organisation with activities limited to trade

b. The UN is an overarching organization with very diverse activities supported through a structure based on various subgroups.

c. The UN is a partnership between the EU and Russia to regulate trade between the two areas

d. The UN is an overarching organisation with activities limited to trade.

Type: multiple choice question

Title: Chapter 05 Question 10

10) What are the three pillars of NAFTA (today USMCA)?

Feedback: NAFTA has been established between Canada, Mexico, and the USA with the aim to promote trade between the nations. Its three pillars are trade, labour mobility, and environmental protection. Under President Trump’s administration the purpose and weight of these three pillars is questioned and renegotiated.

A-head reference: 5.4 Supranational institutions and their regulatory impact

a. Regulative, normative, and cultural-cognitive.

b. Canada, Mexico, and the USA.

c. Trade, labour mobility, and environmental protection.

d. Investment, labour mobility, and environmental protection.

Type: multiple response question

Title: Chapter 05 Question 11

11) How are formal institutions expressed? Please select all that apply.

Feedback: Formal and informal institutions are shaping the institutional environment of any economy. Both are devised by humans, though the formal institutions are also codified.

A-head reference: 5.2 Institutional theory

a. Through traditions.

b. Through laws.

c. Through constitutions.

d. Through cultural taboos.

Type: multiple response question

Title: Chapter 05 Question 12

12) What measures do countries use to restrict inward FDI? Please select all that apply.

Feedback: All answers are correct. Governments have a wide range of tools at their disposal to restrict inward FDI. Sometimes these tools are very subtle and not immediately appear to constraint FDI. However, when their impact on the operations of a business are considered, as in the case of restricting advertisement, then it becomes clearer how the restrictive policies work.

A-head reference: 5.3 Domestic laws and regulations

a. Restriction of free transfer of shares

b. Government consultation required for certain decisions

c. Advertising restrictions

d. Conditions on capital goods necessary to start business

Type: multiple choice question

Title: Chapter 05 Question 13

13) Which new organisations are challenging the structure and status of established supranational organisations? Please select all that apply.

Feedback: AIIB and NDB have been established under the leadership of China. They are sometimes characterised as challengers to the IMF and World Bank and the beginning of the end of the Western liberal free trade economics.

A-head reference: 5.4 Supranational institutions and their regulatory impact

a. AIIB and NDB

b. AFDB and ADB

c. ADB and IDB

d. AIIB and ASEAN

Type: multiple response question

Title: Chapter 05 Question 14

14) At what level can informal institutional elements typically be found? Please select all that apply.

Feedback: The informal institutions derive from customs and traditions within a society. Cities or provinces may have particular traditions that differentiate them from other places in the same country. Informal institutions can therefore be found at the subnational level. Countries are often formed on the basis of a common culture. Nation states are therefore another good level of analysis for informal institutions.

A-head reference: 5.2 Institutional theory

a. Supranational.

b. Subnational (provincial).

c. National.

d. Subnational (city).

Type: multiple response question

Title: Chapter 05 Question 15

15) The pillars of the organisational institutional theory are _______ (Please select all that apply)

Feedback: The three pillars of the organisational institutional theory are the regulative, normative, and cultural-cognitive ones. The do exists in parallel and mutually influence each other.

A-head reference: 5.2 Institutional theory

a. Cultural-cognitive.

b. Societal.

c. Regulative.

d. Normative.

Type: true-false

Title: Chapter 05 Question 16

16) Investment policies have become more restrictive recently.

Feedback: UNCTAD is collecting data on investment policies and publishes a summary in the annual World Investment Report and on the Investment Policy Hub website.

Investment policies have focused on promotion and liberalisation for the last 17 years or so. They have accounted for at least 66 per cent of all policy changes (2010) but typically account for around 80 per cent of all policy changes.

A-head reference: 5.3 Domestic laws and regulations

a. True

b. False

Type: true-false

Title: Chapter 05 Question 17

17) Africa has a unified single market similar to the European Union.

Feedback: African nations have established a number of competing free trade areas. While there have been efforts to established a common currency area and integrate multiple FTAs into one large one, an arrangement has not been finalised yet.

A-head reference: 5.4 Supranational institutions and their regulatory impact

a. True

b. False

Type: true-false

Title: Chapter 05 Question 18

18) The normative pillar is gaining its legitimacy from the rule of law.

Feedback: Organisational institutional theory proposes three pillars: regulative, normative and cultural-cognitive. The legitimacy mechanism for the normative one is the moral expectation within a society.

A-head reference: 5.2 Institutional theory

a. True

b. False

Type: multiple choice question

Title: Chapter 05 Question 19

19) What are informal institutions?

Feedback: Informal institutions are the uncodified and intangible fabric of societies.

A-head reference: 5.2 Institutional theory

a. Informal institutions are the codified and tangible fabric of societies

b. Informal institutions are the uncodified and intangible fabric of societies

c. Informal institutions are the national and authoritative rules of societies

d. Informal institutions are the classified and intrinsic rules of societies

Type: true-false

Title: Chapter 05 Question 20

20) ASEAN has an early attempt by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to establish of a regional supranational institution

Feedback: ASEAN dates back to 1967, as an early attempt by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote their common socio-economic and political interests through the establishment of a regional supranational institution. Brunei (1984), Vietnam (1995), Laos and Burma (1997), and Cambodia (1999) joined later.

A-head reference: 5.4 Supranational institutions and their regulatory impact

a. True

b. False