Mncs - Bane or Boon for Development?

Topics: Current account, Balance of payments, International economics Pages: 3 (665 words) Published: May 1, 2013
Multinational companies (MNCs) are believed to play a major role in the economies of developing countries. Ideally MNCs have contributed substantially towards the growth of developing countries.

MNC is most simply defined as a corporation or enterprise that conducts and controls productive activities in more than one country with the head office being established in a developed country. Big companies mostly from America, Europe and Japan but also increasingly from newly industrializing countries like South Korea, Taiwan and Brazil, create development opportunities. The issues created by these companies are serious ones that must be considered.

It is believed among many economists that MNCs fill various gaps within a host country's economy. The first and most often cited one is that, when domestic investment and savings doesn't meet the required rate of growth in the economy, the gap in investment is filled by the MNCs' investment.

Secondly when the targeted foreign exchange is not met by the net foreign exchange derived from imports and exports together with net public debt, the gap is constituted by MNCs' net exports and capital inflow. These giant companies also fill the gap between targeted government tax revenues and locally raised taxes. Lastly the gap of management skills, entrepreneurship and technological skills are believed to be filled by the MNCs.

Despite what the majority believes, MNCs are not the panacea for development for developing countries. This has been proved for many years. - WHY? Even though it is said that MNCs provide capital and savings, they charge a higher interest on capital borrowed by the government in the host country. Apart from that, MNCs repatriate the profits to their home country apparently hindering the re-investment possibility of those profits in the host country. Further MNCs import the required intermediate goods without purchasing from domestic producers, thereby reducing the opportunity to grow for the...
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