Saturday, 10 September 2011


According to the World Investment Report in 1999 multinational corporations produced about 25% of the world’s GDP. That obviously shows how MNCs are important in the economy. They can have many advantages and disadvantages for both developed and developing countries and many people have different views on their actual impacts. There is a debate going if the governments should seek to regulate and control the flows of foreign direct investment into and out of the country.

Firstly, multinational corporations cause stable capital inflows and are more stable than portfolio investments (The purchase of stocks, bonds, and money market instruments by foreigners for the purpose of realizing a financial return, which does not result in foreign management, ownership, or legal control). Secondly, they provide more jobs for local people, which is very important especially in developing countries. Thirdly, FDI is an important, perhaps even the most important, way through which advanced technology is transferred to developing countries. It leads to higher productivity and, consequently, higher wages.

Though foreign direct investments can have many positive impacts on ‘home’ and ‘host’ countries there is a possibility of many negative results of them. The overwhelming share of FDI flows is between the developed countries (in 1999 67.7% of inward stock and 89.9% of outward stock). What is more within the developing countries these stocks are concentrated mainly among only a handful of countries (China, Taiwan, Hong Kong, Thailand and Singapore). This can cause even a bigger gap between poor and rich. The other thing is tax competition. In an attempt to attract business investments governments may reduce taxes which would not offer benefits to local business. Moreover, the environment would suffer because of bigger pollution and less regulations.

The government can offer investors many kinds of subsidies, infrastructure investments and the creation of a cooperative workforce, and reduce of regulations. The most important thing for to remember is to be skeptical about the predicted benefits.

That's what I think.


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