The role of multinational corporations in globalisation 4.2.6.1

Summary

Multinational corporations play a significant role in the global economy, driving growth in both developed and developing countries. They bring investment, job opportunities, and infrastructure improvements, boosting aggregate demand and supply. However, their pursuit of profit can lead to negative consequences, including environmental damage, exploitation of workers, and the displacement of small local businesses. Multinationals are often criticized for avoiding taxes, depriving governments of vital revenue. Despite these issues, they contribute to economic diversification, lower production costs, and increased competition, making them a complex and impactful force in the global economy.

Takeaways

• 😀 Multinational corporations (MNCs) have significant influence on the global economy, affecting both developed and developing countries.
• 😀 MNCs are driven by the profit motive and may relocate to low-wage economies to reduce production costs.
• 😀 The influx of capital from MNCs can increase aggregate demand, boost economic growth, and reduce unemployment in developing countries.
• 😀 Investment from MNCs can increase productive capacity, shifting aggregate supply to the right and promoting economic growth without causing inflation.
• 😀 MNCs can bring benefits like economies of scale, leading to lower unit costs and competitive prices for consumers.
• 😀 MNCs often create local job opportunities and invest in workforce training and infrastructure, contributing to economic development.
• 😀 MNCs can diversify the economy in developing countries by introducing new industries and sectors that drive growth.
• 😀 MNCs tend to set minimum standards in production, improving quality, and ensuring health and safety considerations.
• 😀 Small local firms may struggle to compete with MNCs, leading to reduced competition and potential business closures.
• 😀 MNCs can cause environmental harm by relocating to countries with fewer environmental regulations, leading to increased pollution.
• 😀 MNCs may exploit local labor and resources, prioritizing profits and shareholder dividends over the well-being of the developing country.

Q & A

What role do multinational corporations play in the global economy?

Multinational corporations are a significant presence in the global economy, influencing both developed and developing countries positively and negatively. They drive profit motives, investment flows, and influence markets.

How do multinational corporations influence developing countries?

Multinational corporations influence developing countries by moving production to lower-wage economies, driving capital expenditure and investment into these countries. This can increase aggregate demand, economic growth, and potentially lower unemployment.

What impact does investment from multinational corporations have on a country's economy?

Investment from multinational corporations can lead to economic growth by increasing aggregate demand, reducing unemployment, and boosting productive capacity. It can also reduce inflation if accompanied by increased aggregate supply.

What are the potential risks of inward investment from multinational corporations?

Inward investment can cause inflation if the economy is already at full employment, or if investment only represents a small part of total demand. Additionally, multinational corporations may cause economic problems if they dominate the market, reducing competition.

How does investment in infrastructure by multinational corporations benefit local economies?

Multinational corporations often invest in local infrastructure, such as roads and transport systems, to aid their operations. This also benefits the local economy by improving accessibility and creating employment opportunities.

How do multinational corporations contribute to economies of scale?

By spreading production over a large number of units, multinational corporations can reduce unit costs and create competitive prices, benefiting consumers through lower prices.

What are the social benefits that multinational corporations bring to developing countries?

Multinational corporations contribute to local economies by offering employment opportunities, training for the workforce, and improving production standards, such as health and safety considerations.

What are some negative environmental impacts caused by multinational corporations?

Multinational corporations often choose locations with weak environmental laws to minimize costs. This can result in significant pollution and environmental degradation, creating negative externalities that affect local and global ecosystems.

Why are multinational corporations often referred to as 'footloose'?

Multinational corporations are referred to as 'footloose' because they are highly mobile, willing to relocate operations to take advantage of favorable tax laws and economic incentives offered by different countries.

What criticisms have companies like Amazon and Starbucks faced regarding their operations in the UK?

Amazon and Starbucks have faced criticism for their minimal tax payments in the UK, despite generating substantial revenue, which deprives the government of income needed to fund public services.