What Potential Effects do Multinationals Have on Developing Countries?

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What potential effects do multinationals have on developing countries?

Introduction The Multinational Corporation (MNC) has been a central feature of economic activity in the past decades. According to the World Investment Report 2001, Foreign Direct Investment (FDI) by MNCs in 2000 grew faster than any other economic aggregated indicator1. The spread of MNCs around the globe continues to generate controversy about their benefits and costs to host countries. However, before commencing an analysis of the pertinent issues, it is important to briefly define the terms MNC as well as FDI: an MNC is most simply defined as a “cooperation or enterprise that conducts and controls productive activities in more than one country”2. Cross border expansion takes place through Foreign Direct Investment (FDI), which is defined as “international capital flows in which a firm of one country creates or expands a subsidiary in another”3. Importantly, the distinguishing feature of MNC expansion through FDI in comparison to other forms of capital flows, is that it “retains the control and ownership over its proprietary technologies”4. In this essay the benefits and costs of MNCs are assessed mainly by looking at FDI in developing countries. The essay’s discussion is divided into 3 parts: the first part deals with a general theoretical cost benefit analysis, the second lists some general criticisms of MNCs, and the third part discusses a number of case studies. The discussion will attempt to illustrate that the effects of MNCs on developing countries depend often on P.1, UNCTAD World Investment Report 2001- Promoting Linkages, Overview, Internet Edition p.534, Todaro, M. and S. Smith (1997) Economic Development, 6th ed Addison-Wesley 3 p. 168, Krugman, P. and Obstfeld, M. (1997) International Economics Theory and Policy, Addison and Wesley 4th edition. 4 P.4, Blomstrom, M and A. Kokko (1996) ‘The Impact of Foreign Investment on Host Countries: A Review of Empirical Evidence, Working...
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