Q3+-+Developement

3. Do the activities of multinational companies help or hinder the progress of economic development? Justify your answer. ==== A multinational company is defined as one that facilitates long term investment in a foreign country, and has production units in more than one country. MNCs aid Economic Growth, which is marked by increased GDP. This is mainly because MNCs increase investment into capital, bring new technologies and increase trade between countries. The positive affect on Economics growth is shown by the outward shift of the Production Possibility Curve, as shown bellow. However, MNCs may harm Economic Development, which is increase in quality of living. MNCs usually “situate themselves were legislations on safety and pollution are low” and where availability of cheap labour is high. As a result, MNCs are found to exploit cheap labour, over-use natural resources and emit excessive CO2 due to increased production. This harms sustainable development, as the country harms the future generation’s ability to produce output and consume. MNCs also “repatriate their profits” which means that they do not inject money back into the host country for development, despite using the host country’s resources. Finally many MNCs bring their own managerial staff, which means that they do not positively impact unemployment rates. In fact, increased domination of MNCs in domestic economies will harm the domestic firms, which may lead to even more domestic unemployment – the opportunity costs of which are high in the economy, as increased unemployment will lead to increased crime and increased diversion of funds from development sectors to unemployment benefits. An example of hindrance to economic development caused by an MNC, is India, where increased presence of MNCs in the last 20 years, since it has become an open-economy, has gradually increased India’s carbon footprint from “0.8 to 1.4 metric tons of CO2. ”Thereby, MNCs largely hinder the progress of economic development in their host countries. ====

Graph 1: Shift of PPC indicates Economic Growth