impact of TNCs

Topics: Developed country, Economy, Country classifications Pages: 3 (1045 words) Published: September 6, 2014
Question: “The benefits of Transnational Corporations (TNCs) operating in Less Developed Countries outweigh the negative impacts.” How far would you agree with this statement?

A transnational corporation (TNC) is a firm that has the power to coordinate and control operations in more than one country, even if it does not own them. There has been a movement of industrial activity from Developed Countries (DCs) to Less Developed Countries, due to the lower production costs in LDCs, allowing TNCs to maximize profits. Less Developed Countries can be further categorized into two different types, namely Newly Industrializing Economies (NIEs) such as China and India, and Least Developed Countries (LDCs). TNCs have the ability to take advantage of geographical differences and to switch and re-switch its resources and operations between locations at an international, or even a global, scale. Thus, it is undeniable that TNCs have great economic, social and environmental impacts on the host country. However, whether the benefits outweigh the drawbacks depends on the level of the development of the country. TNCs bring about more economic and social benefits to NIEs but cause more environmental and socio-economic harm to LDCs, where there is a lack of legislative powers to protect workers and the environment from exploitation. TNCs provide economic stimulus and create employment in host countries through the multiplier effect and theory of cumulative causation. The injection of capital widens the economic base of the host country. TNCs often help LDCs climb the ladder of economic development. When the host country receives new investment, the economy is able to develop, increasing demand for labour. Increased personal income not only increases standard of living and quality, but it generates higher purchasing power for consumer goods which can lead to the growth and development of service industries as well. TNCs invest in China due to its labour ‘controllability’,...
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