Costs of FDI

Description: This quiz aims to test your understanding of the various costs associated with Foreign Direct Investment (FDI) in India.
Number of Questions: 15
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Tags: fdi costs of fdi indian economy
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Which of the following is NOT a potential cost of FDI in India?

  1. Job losses in domestic industries

  2. Increased competition for domestic firms

  3. Exploitation of natural resources

  4. Transfer of technology and skills


Correct Option: D
Explanation:

Transfer of technology and skills is generally considered a benefit of FDI, as it can help to improve the productivity and competitiveness of domestic industries.

What is the term used to describe the situation where FDI leads to the displacement of domestic workers?

  1. Job displacement

  2. Structural unemployment

  3. Technological unemployment

  4. Frictional unemployment


Correct Option: A
Explanation:

Job displacement is the term used to describe the situation where FDI leads to the displacement of domestic workers, either through the closure of domestic firms or through the relocation of production to other countries.

Which sector in India is most vulnerable to job losses due to FDI?

  1. Manufacturing

  2. Agriculture

  3. Services

  4. Construction


Correct Option: A
Explanation:

The manufacturing sector in India is most vulnerable to job losses due to FDI, as it is the sector that is most exposed to competition from foreign firms.

What is the main reason why FDI can lead to increased competition for domestic firms?

  1. Foreign firms have access to cheaper inputs

  2. Foreign firms have more advanced technology

  3. Foreign firms have larger economies of scale

  4. All of the above


Correct Option: D
Explanation:

All of the above factors can contribute to increased competition for domestic firms when FDI takes place.

Which of the following is NOT a potential environmental cost of FDI in India?

  1. Pollution

  2. Deforestation

  3. Soil erosion

  4. Increased energy consumption


Correct Option: D
Explanation:

Increased energy consumption is not typically considered an environmental cost of FDI, as it is a general consequence of economic growth.

What is the term used to describe the situation where FDI leads to the exploitation of natural resources in India?

  1. Resource nationalism

  2. Dutch disease

  3. Enclave economy

  4. Immiserizing growth


Correct Option: A
Explanation:

Resource nationalism is the term used to describe the situation where FDI leads to the exploitation of natural resources in India, often to the detriment of the local population and environment.

Which of the following is NOT a potential social cost of FDI in India?

  1. Cultural erosion

  2. Increased inequality

  3. Social unrest

  4. Improved living standards


Correct Option: D
Explanation:

Improved living standards is generally considered a benefit of FDI, as it can lead to increased employment, higher wages, and improved access to goods and services.

What is the term used to describe the situation where FDI leads to the creation of an enclave economy in India?

  1. Dutch disease

  2. Enclave economy

  3. Immiserizing growth

  4. Resource nationalism


Correct Option: B
Explanation:

Enclave economy is the term used to describe the situation where FDI leads to the creation of an enclave economy in India, where foreign firms operate in a separate and distinct economic zone from the rest of the economy.

Which of the following is NOT a potential economic cost of FDI in India?

  1. Increased foreign debt

  2. Inflation

  3. Balance of payments deficit

  4. Increased economic growth


Correct Option: D
Explanation:

Increased economic growth is generally considered a benefit of FDI, as it can lead to increased employment, higher wages, and improved access to goods and services.

What is the term used to describe the situation where FDI leads to immiserizing growth in India?

  1. Dutch disease

  2. Enclave economy

  3. Immiserizing growth

  4. Resource nationalism


Correct Option: C
Explanation:

Immiserizing growth is the term used to describe the situation where FDI leads to immiserizing growth in India, where the overall economic welfare of the country actually declines as a result of FDI.

Which of the following is NOT a potential political cost of FDI in India?

  1. Increased foreign influence

  2. Loss of economic sovereignty

  3. Social unrest

  4. Improved governance


Correct Option: D
Explanation:

Improved governance is generally considered a benefit of FDI, as it can lead to increased transparency, accountability, and efficiency in government.

What is the term used to describe the situation where FDI leads to the loss of economic sovereignty in India?

  1. Dutch disease

  2. Enclave economy

  3. Immiserizing growth

  4. Loss of economic sovereignty


Correct Option: D
Explanation:

Loss of economic sovereignty is the term used to describe the situation where FDI leads to the loss of economic sovereignty in India, where the government's ability to make independent economic decisions is compromised.

Which of the following is NOT a potential legal cost of FDI in India?

  1. Increased litigation

  2. Legal uncertainty

  3. Increased regulatory burden

  4. Improved legal framework


Correct Option: D
Explanation:

Improved legal framework is generally considered a benefit of FDI, as it can lead to increased transparency, accountability, and efficiency in the legal system.

What is the term used to describe the situation where FDI leads to increased regulatory burden in India?

  1. Dutch disease

  2. Enclave economy

  3. Immiserizing growth

  4. Increased regulatory burden


Correct Option: D
Explanation:

Increased regulatory burden is the term used to describe the situation where FDI leads to increased regulatory burden in India, where the government imposes additional regulations on foreign firms.

Which of the following is NOT a potential institutional cost of FDI in India?

  1. Increased corruption

  2. Weakened institutions

  3. Increased bureaucracy

  4. Improved institutional framework


Correct Option: D
Explanation:

Improved institutional framework is generally considered a benefit of FDI, as it can lead to increased transparency, accountability, and efficiency in government institutions.

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