Answer (D) is correct . Adverse effects on the home country include (1) loss of jobs and tax revenues, (2) instability caused by reduced flexibility of operation in a foreign political system, (3) the risk of expropriation, and (4) the competitive advantage of multinationals over domestic rivals.
Answer (A) is incorrect because Net capital outflow is more likely to be an adverse effect on the host.
Answer (B) is incorrect because Manipulation of transfer prices is more likely to be an adverse effect on the host. The result is establishment of economically unreasonable transfer prices among subsidiaries so that profits will be earned where taxes are lowest or restrictions on the export of profits are least stringent.
Answer (C) is incorrect because A benefit to the host is investment in new technology.
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