The impact of MNCs

Question 1

Define MNCs?

Answer 1

MNCs are businesses that operate or have assets in more than one country

Question 2

What positive impacts do MNCs have on the local economy?

Answer 2

• Job creation and increased revenue for local businesses via multiplier effect
• Higher wages

Question 3

What negative impacts do MNCs have on the local economy?

Answer 3

• Local competitors may not be able to compete with the MNC
• MNC may damage the environment (could cause a fall in GDP if its something like an oil spill as fisherman will lose there incomes)

Question 4

What impact do MNCs have on the national economy (economic growth)?

Answer 4

growth of business activity will stimulate the whole economy -> increased employment and wages -> increase in tax base and government revenue -> increase in government spending -> benefits the economy

Question 5

What impact do MNCs have on the national economy (FDI and the balance of payments)?

Answer 5

Exports may increase -> improving the balance of payments

• If one MNC succeeds in the country other may follow -> increased investment flows -> technology and skills transfer
• Governments have more money to invest in infrastructure, education and healthcare

Question 6

What impact do MNCs have on the national economy (technology and skills transfer)?

Answer 6

MNCs may require skilled workers and train up the local workforce
-New work practices and technology will help the host country to become more competitive and grow (skills and technology transfer)

Question 7

What impact do MNCs have on the national economy (consumers)?

Answer 7

Rise in incomes -> more money spent creating demand in the economy -> more jobs being created
- people can be lifted out of poverty

However incomes may not be distributed evenly causing inequality

Question 8

What impact do MNCs have on the national economy (Tax revenue and transfer pricing)?

Answer 8

Increasing wages and employment should enlarge the tax base and increase government revenue -> government reinvesting

• potentially less people on benefits
• profits of MNC can be taxed

However

• Profits can be repatriated to the home country
• MNC can avoid or reduce tax through transfer pricing