Outward FDI shifts production abroad, impacting home trade balance

Steps:

• South Korea's factory in Switzerland represents outward foreign direct investment (FDI).
• Profitable operation means goods production occurs in Switzerland, not Korea.
• This reduces South Korea's potential exports of those goods.
• Result: South Korea's goods exports fall, worsening its trade balance.

Why B is correct:

• Trade balance in goods = exports - imports; lower exports directly worsen the balance per the standard definition.

Why the others are wrong:

• A: No basis for decreased imports; Korea might import more from its Swiss factory.
• C: Switzerland's balance improves via local production replacing prior imports from Korea.
• D: Factory produces goods, not services, so services balance unaffected.

Final answer: B