Government Regulations for Economic Growth

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‘The best hope for developing countries to attain economic growth is through integration into the world economy. And their tool, if only they are willing to use it is the multinational company’. Discuss.

International Political Economy

The best hope for developing countries to attain economic growth is through integration into the world economy. And their tool, if only they are willing to use it is…the multinational company’. Discuss

The presence and activities of multinationals (MNCs) in developing countries has been a subject of controversy in discussions on development, politics and economics. Renewed confidence in the positive benefits of MNCs has led many countries previously resisting MNCs in the 60s, 70s and 80s to be more open in the 90s . “Governments are liberalising MNCs regimes as they have come to associate MNCs with positive effects for economic development and poverty reduction in their countries.” Of course, in practice, objectives to attract MNCs differ by country and the impact of MNCs is not always desirable. However, economic growth and industrialisation combined with an increasingly globalized world enable MNCs to become a useful tool for economic growth.

This essay will assert that within a state planned strategy of growth, integration into the world economy through collaboration with MNCs can help developing countries grow economically. This essay will dispute the claims of dependency theorists who claim that integration into the world market must lead to underdevelopment and instead suggest a modern mercantilist perspective where development benefits from a mix of state and market is the best strategy for achieving economic growth. The question is not so much whether or not to use MNCs; the case for, is overwhelming. Rather, I suggest the more pertinent question is how to use MNCs as part of a focused strategy of growth.

A broad interpretation of multinationals (MNCs) will be used; a large company that operates in more than one country, usually entailing foreign direct investment (FDI) by a corporation. This is opposed to a purely domestic business which has no operations abroad. There are estimated to be 63,000 multinational corporations in the world. Nike, IBM, General Motors and McDonalds are typical examples. Between them, they are responsible for two thirds of global trade and 80% of investment. Economic growth will be understood to mean an increase in a country’s real GDP

After independence, many former colonies were faced with issues of economic underdevelopment. Although economic development was crucial to establishing a national identity and ensure internal political stability, “political leaders often viewed former colonial powers with some suspicion.” Many leaders of the new nation states believed Western led capitalism was partly responsible for the backwardness of their state, “in some parts of the developing world, these sentiments helped shape a cautious approach to adopting Western influence and methods of economic development.” Liberal free market economies were viewed with a certain degree of scepticism and many developing countries adopted closed, protectionist economies in an attempt to grow from within.

However, without a liberal free market economy, there is little entrepreneurship or incentive to industrialise as people do not directly profit from their work. The starting position for developing countries is a largely agrarian society; Rostow suggests this is the first of five stages of growth. This pre-capitalist society existed everywhere before the industrial revolution; there is limited output because of a lack of science and technology. Rostow suggests that development requires substantial investment in capital. For the economies of developing countries to grow, the right conditions for such investment have to be created. These conditions can range from transport and communication infrastructure to tax breaks and financial incentives for MNCs...
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