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Private Investment MNC & LDCs (LDC (Cons (Domestic competition…
Private Investment MNC & LDCs
MNC
Pros
Ease of access
LDCs want investment
Weaker rule of law and regulations
Enviromental regs protect the collective in developed countires. In LDCs these rules are much weaker or dont exist
Lower wages
Skilled labor is still cheap
Very strong position to negotiation from
Can hide behind regualtions and paper work
Only there for personal gain,
Once job is done, firm can move on.
Very flexible
Size of MNC vs country
Most of host countries are tiny in comparison to the extraction companies. Shell Turnover is larger than Norways GDP.
Gain Foothold in local market
Abundance of raw materials
Gain access to protected market
Suppress competition
Cons
Where there is economic instability this puts MNCs off
Unstable inflation rate
unstable unemployment
Unstable currency
Coupe d'eate
These are not good for MNCs as they put the lives of workers at risk
Also disrupts flow of resources in and out of country
Can mean countries become embargoed (Cuba)
LDC
Pros
Very attractive for extraction firms
Oil
Gas
Minerals
Africa, ore, metals,
Chemicals
Nauru, Phosphate extraction
Increased Capital
local incomes rise
Local employment
Infrastructure often built in
Commodities:
MNCs can link small exporters to global market.
St Lucia gets access to global market, which helps as they lack the economies of scale that larger countries have.
Cons
Dependency upon MNC
Transfer prices
Bargaining with MNC, not a fair position
Weak rule of law regulation
Low cost of labour
Domestic competition struggles
MNC can stifle domestic investment and knock local firms out as more product is imported.
When MNC is finished there is no more money
Stability of economy, uncertainty. Distorts domestic economy
Farming nations stop farming when MNC revenue comes in and they live off that.
Begin to import more luxury goods and can't sustain consumption without MNC
Environmental damage
Hard to get hold of revenue.
Deal can be basted on profits generated by company, it is hard to track down how much the MNC has actually made.
Points of law and complex financial arrangements make it difficult to find the money.
Developed economies can not get MNCs to pay enough tax, how can developing economies be expected to compete.
Money made by MNC does not get reinvested back into country, money is often siphoned off to Cayman Islands
Knowledge may not be transferred from MNC to domestic nation if local labor is not used
LDC have an issue allocating unskilled labour and rarely do MNCs use unskilled labour they need to the popular skilled labour. Creating a deeper segmented labour market
Capital intensive labour techniques
These do not lend themselves to employment issues in LDCs. Trinidad 50% of GDp comes from Industry but only employs 10% of population
Fill savings and investments gap - economic growth
Fill foreign exchange gap
Most LDCs dont have an internationally
Access to technology and management expertise
New technology comes with the MNCs and embed it in country. (potentially adds to dependency argument.
Access to sophisticated goods
Infrastructure investment
Typically infrastructure is tied up in an MNC deal, however these are normally routs designed to get resources out of the country as quickly as possible.
Increased employment
Boosts GDP, increasing demand for labour. However sometimes MNCs bring with them own staff.