Q14b+-+Development


 * 14 (b) Do multinational corporations work in favor of, or against the interests of Less Developed Countries? (13)**

Multinational corporations are companies that have productive units in more than one country. MNCs are associated with foreign direct investment, which is basically long-term investment by an MNC in a country. MNCs could work both in favour of or against the interest of LDCs as there are several advantages and disadvantages of their foreign direct investment.

One of the primary advantages of MNCs is that their FDI helps fill the domestic savings gap in the LDC hence enabling an increase in the rate of growth in GDP because an increase in savings, helps increase investment which triggers greater output and greater growth. Also, MNCs provide employment and training which aids in improving the skills of the workforce. A more productive workforce yields greater quality and quantity of output. MNCs also bring greater access to technology and R&D, which again helps improve quality and quantity of labour in LDC. Consequently employment and earnings increase which have a multiplier effect which stimulates growth. Also the government of the LDC gains tax revenue in the form of corporate taxes – this revenue is used for development that leads to improvement in education, healthcare and infrastructure. Also the activities of MNCs with liberalized trade leads to efficient allocation of world resources.

Though there are several advantages, MNCs in LDCs have disadvantages as well. Many times MNCs bring their own managerial teams hence leading to no education or training of the workforce in the LDC. MNCs tend to be very powerful hence easily win tax breaks and ignore policies of WTO. Therefore government tax revenue may not increase at all. MNCs tend to take advantage of the lack of regulations in LDCs; therefore great exploitation of the environment and local workers who have to work in dire conditions with low wages. MNCs tend to repatriate profits (move them to country of origin), hence the profits are not reinvested into the economy of the LDC leading to low investment and low growth. Many MNCs tend to extract natural resources and then leave. This depletes natural resources in the LDC, depriving them of a factor of production that they were otherwise endowed with and could have used to stimulate trade. Many MNCs employ capital-intensive/ labour-saving production methods, thus there many not be any improvement in employment

As evident, there is no clear cut way of determining whether MNCs work in favor of, or against the interests of Less Developed Countries. There are advantages and disadvantages that could either stimulate or impede growth in the LDC.