Chapter 20.5

Question 1

Why do MNCs expand into economically less developed countries?

Answer 1

Increase sales and revenue
Bypass trade barriers
Lower costs of production
Use locally produced raw materials
Further their activities in natural resource extraction

Question 2

Advantages of MNCs for host developing countries

Answer 2

Can supplement insufficient foreign exchange earnings
Can supplement and improve upon local technical and management skills or technology
Can supplement insufficient domestic savings and increase investment
Greater tax revenues in host country
Help promote local industry
Can increase local employment
Can lead to higher economic growth

Question 3

Potential disadvantages of MNCs for host developing countries

Answer 3

May not always supplement insufficient foreign exchange earnings
May not improve on local technical and managements skills or technology
May not lead to greater tax revenues
May not help promote local industry
May not help lower unemployment
Environmental degradation
Promote inappropriate consumption patterns
May use government resources to build infrastructure needed by MNCs rather than for poverty alleviation
May use their economic and political power to bring about policies that may work against economic development
Competition between developing countries to host MNCs