Can
multinational companies have a positive influence on developing countries? Give examples of atleast 3 developing countries?
Answers
Explanation:
Advantages of Multinational Corporations in developing countries
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 Harrod-Domar model of growth suggests that this level of investment is important for determining the level of economic growth. One of the best ways to increase the level of economic growth is to provide an inflow of capital from abroad.
The inflows of capital help to finance a current account deficit. (Basically, this means that foreign investment enables developing countries to buy imports.)
Multinational corporations provide employment. Although wages seem very low by Western standards, people in developing countries often see these new jobs as preferable to working as a subsistence farmer with even lower income.
Even liberal economists like Paul Krugman and Jeffrey Sachs have defended ‘sweatshop labour’ arguing that although employers are paying too low wages. Often sweatshop labour is better than the alternative of scavenging or no paid employment. Economies in south-east Asia have seen rising wages in recent decades – showing that low wage economies can develop.
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.
Multinational firms help to diversify the economy away from relying on primary products and agriculture – which are often subject to volatile prices and supply.