Evaluate the view that MNCs play a positive role in the development of LEDCs

Question 1

Intro

Answer 1

• LEDCs are less economically developed countries, while MNCs are multi-national corporations such as Apple or Amazon.
• Economic development refers to the reduction of poverty, inequality and unemployment within a growing economy leading to better living standards.
• It is difficult to define a positive role for MNCs.
• LEDCs often lack the infrastructure and stability, resulting in lower standards of living and lower levels of GDP compared to MEDCs.
• They tend to be net exporting countries as their industry sectors are likely to be primary and secondary sectors instead of tertiary sectors.

Question 2

P1 - FDI & productivity

Answer 2

• MNCs might invest in new capital to operate at a similar productivity level to other countries, increasing the spare capacity of the economy and leading to productivity improvements and better working conditions for the labour force.
• This would lead to a reduction in the unit cost of production in goods and services that the MNCs supply, and an increase i the economy’s productive capacity
• Infrastructure is also likely to be built up in the area surrounding the MNC, creating jobs and representing a positive multiplier effect.
• However, higher skilled jobs such as managers are likely to be outsourced and foreign.

Question 3

P2 - Economic growth & trade

Answer 3

• The improvement in productivity and lower cost of production is likely to improve the international competitiveness of the economy, leading to an improvement in net exports.
• This is a net injection into the circular flow and would shift the AD to the right, creating jobs.
• Domestic firms might suffer as a result as they are unable to compete with the MNCs, hindering domestic firms growing in that sector.
• However, the tax revenue generated could be used to subsidize domestic firms and boost other sectors, expanding the diversity of firms in the economy.
• However a lot of LEDCs have little to no tax rates, which is what incentives MNCs to move there also in LEDCs it is easier to avoid taxes due to lack of government organisation

Question 4

P3 - Inequality & Loss of cultural diversity

Answer 4

• MNCs can be detrimental to the environment and exploit workers.
• They can lead to a loss of culture within the country as choice is reduced, with local culture being consumed less as foreign culture is now consumed.
• Additionally, repatriation of profits is a negative on GNP.
• However, the tax revenue generated could be used to fund social welfare programs, reducing inequality

Question 5

Conclusion

Answer 5

• MNCs can play a positive role in the development of LEDCs by creating jobs, increasing productivity, improving international competitiveness, and providing tax revenue for social welfare programs.
• However, MNCs can also be detrimental to the environment, exploit workers, and lead to a loss of culture and diversity.
• Therefore, it is important for governments to regulate the activities of MNCs and ensure they are acting in the best interests of the country and its people.