19. MNC's and emerging countries Flashcards
What are MNC’s?
A multinational corporation (MNC) is a business enterprise that manages production or delivers services in more than one country.
What effects do MNC’s have on the global economy?
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- MNC’s affect local and national policies by causing governments to compete with each other to be attractive to multinational corporation investment in their country.
- Multinational corporations often hold power over local and national governments through a monopoly on technological and intellectual property. Because of their size, multinationals can also have a significant impact on government policy through the threat of market withdrawal.
- Economic globalisation refers to increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, services, technology and capital. MNCs play a key role in this process.
- Those who view economic globalisation positively cite evidence of per capita GDP growth, decrease in poverty, and a narrowing gap between rich and poor nations.
- Those who view economic globalisation negatively cite evidence of exploitation of the local labour force, funnelling of important resources away from the country itself into foreign exports, and overall dependency of developing countries upon wealthy countries.
What is an EME (emerging market economy)?
Defined as an economy with low to middle per capita income. Such countries constitute approximately 80% of the global population, and represent about 20% of the world’s economies.
How has Globalisation positively affected EME’s?
Globalisation has helped emerging markets to grow. This is because they represent fantastic opportunities for MNCs to expand, develop new markets and diversify. This is due to their large often young population and considerable potential as a source of new customers or employees
This has helped to improve standards of living in emerging economies for 2 reasons
More job opportunities due to MNCs investing in their countries (FDI). MNCs often pay better than local employers, meaning higher incomes therefore increased AD. Often, MNCs offer significant training and development of workers, teaching many developing skills, improving human capital and therefore AS
More choice for consumers due to availability of global brands. This increases C and helps to boost AD.
How has Globalisation negatively affected EME’s?
- Globalisation (and in particular the growth of MNCs) has led to the loss of many native businesses in emerging economies.
- Globalisation has enhanced inequalities in emerging economies like India. Although some households have moved out of poverty due to globalisation, millions remain in poverty. Due to improvements experienced by others those in poverty become relatively poorer than ever.
- Globalisation is associated with free movement of Labour. This has led to something of a “brain drain” from many emerging economies (e.g. Turkey and Mexico) where millions of the best qualified workers seek greater riches overseas.
- Inward FDI (to emerging economies) has a symmetrical effect on finance flows. E.g. Nike makes shoes in Indonesia- profits end up in America
How have developed economies benefitted from Globalisation?
new markets have opened up for exports of the countries concerned, shifting AD to the right and increasing economic growth
Also, increased migration has led to large pools of immigrant labour are available to developed countries, helping them to operate close to the PPF.
Economies of many developed countries (e.g USA/UK) have increasingly become driven by the powerful financial markets they own and have seen large flows of finance from developing and emerging economies looking to invest in these markets.
What are the negatives for developed countries from Globalisation?
For many this has seen the gradual disappearance of large parts of their primary and secondary sectors.
Increased immigration levels have led to socio-political tensions which negatively affects growth.
Finally, globalisation has greatly contributed to greater inequality, with many regions previously dependent on traditional industries falling way behind the rest.
What are the positives for emerging counties from Globalisation?
Countries such as China and India have been allowed to achieve phenomenal levels of growth not previously possible.
Standards of living, access to consumer goods have improved.
Globalisation has allowed the potential for their leading companies (TATA- India) AliBaba (China) to expand across the globe.
What are the negatives for emerging countries from Globalisation?
High levels of FDI from developed countries has resulted in profits leaving the countries concerned.
Globalisation has increased pressure on natural resources- the Brazilian rain forests are a classic example of this.
Brain Drain
