Multinational Corporations in Globalization Questions and Answers

Multinational Corporations in Globalization Questions and Answers Multinational Corporation MNC A large business organization operating in a number of different national economies. What happens to MNCs in times of globalization? They have an increased role. Previous Play Next Rewind 10 seconds Move forward 10 seconds Unmute 0:00 / 0:15 Full screen Brainpower Read More What will an increased role of MNCs lead to? An injection of FDI in other countries, particularly LDCs where labour and environmental regulations are less prominent. What are the effects of FDI? A positive multiplier effect = growth, employment, inflation. Examples of MNCs Nike, Sony, Apple, Toyota, Coca-Cola Advantages of MNCs - Balance of Payments Multinationals provide an inflow of capital into the developing country. E.g. the investment to build the factory is counted as a capital flow on the financial account of the balance of payments. This capital investment helps the economy develop and increase its productive capacity. The inflows of capital help to finance a current account deficit. (Basically, this means that foreign investment enables developing countries to buy imports Advantages of MNCs - Employment Investment provides demand for labour, although poorly treated, and growth reduces cyclical unemployment. Advantages of MNCs - How have liberal economists defended sweatshop labour? Paul Krugman and Jeffrey Sachs have argued that although employers are paying too low wages. Often sweatshop labour is better than the alternative ofno paid employment. Economies in south-east Asia have seen rising wages in recent decades - showing that low wage economies can develop Advantages of MNCs - Infrastructure Multinational firms may help improve infrastructure in the economy. They may improve the skills of their workforce. Foreign investment may stimulate spending in infrastructure such as roads and transport. Disadvantages of MNCs - Environment Multinational companies can outsource parts of the production process to developing economies with weaker environmental legislation Disadvantages of MNCs - Regulatory capture MNCs can begin to dominate a country and use their financial clout in LDCs to influence policy which benefits them at the expense of the nation. Disadvantages of MNCs - Profit Although multinationals invest in developing economies, the profit is repatriated to the location of the multinational, so the net capital inflows are less than they seem. Disadvantages of MNCs - top jobs When undertaking new projects, the multinational may have to employ skilled labour from other economies and not the developing economy. This means best jobs are not received by local workers and the investment is diffused. Diagrams for MNCs AD out. LRAS out. Disadvantages of MNCs - Poor workers Not all economists are convinced sweat-shop labour is a good thing. Critics argue that weak labour conditions allow multinationals to use their monopsony power and pay lower wages to workers than they should get paid. Inflation High demand pull, low inflation in the long run, agflation, falling cost push inflation due to cheaper outsourcing of raw materials and a fall in corporation tax to attract MNCs.