In which of the following situations would FDI improve the current account of the host country's balance of payments?
A) if the foreign subsidiary imports a substantial number of its inputs from abroad
B) if the FDI reduces existing employment opportunities
C) if the FDI is a substitute for imports of goods or services
D) if the FDI results in substitution of products produced domestically

Question

Quizplus · Accepted Answer

If the FDI is a substitute for imports of goods or services, the effect can be to improve the current account of the host country's balance of payments. Much of the FDI by Japanese automobile companies in the United States and Europe, for example, can be seen as substituting for imports from Japan.

In Which of the Following Situations Would FDI Improve the Current