Describe a multinational corporation and foreign direct investment (FDI).

Vishal

TuesdayJul 2 at 11:30am

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Hi Class,

Describe a multinational corporation and foreign direct investment (FDI).
Multinational Corporation is a firm with headquarters in one country and one or more branch plants in other countries.  Multinational Corporation mostly chooses a location in developing countries for raw materials and land that products they cannot export from home; moreover, “A multinational corporation that is the largest taxpayer, the largest export earner, and major employer in a small country may wield more real power than the host government” (Amacher, R., & Pate, J., 2019 Ch.16 pg.21 p.3).  On the other hand, foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country “Foreign direct investments are commonly made in open economies that offer a skilled workforce and above-average growth prospects for the investor, as opposed to tightly regulated economies. Foreign direct investment frequently involves more than just a capital investment” (Foreign Direct Investment (FDI). (2003, November 20).

Identify some benefits and costs for the host country from allowing a multinational corporation to locate there, despite its developing economy.
Some of the benefits for allowing a multinational corporation is cheap labor, lower tax rates “They do benefit host countries by bringing in capital, providing job opportunities, and increasing foreign exchange. The fact that developing countries actively encourage multinationals to locate there suggests that there are substantial benefits” (Amacher, R., & Pate, J., 2019 Ch.16 pg.21 p.2).

Evaluate whether developmental assistance from world developmental agencies, such as the World Bank or the United Nations, would be preferable to private investment.
World Bank is affiliated with the United Nations.  These organizations provide loans to developing countries for capital programs to promote foreign investment “Another feature of the concept was its use of capital flows (in the form of development assistance and foreign investment) to developing countries as a means of narrowing the income gap between rich and developing countries. The bank has expanded its lending activities and, with its numerous research and policy divisions, has developed into a powerful and authoritative intergovernmental body” (World Bank. (n.d.).  In my opinion, the World Bank can help link capital looking for higher returns with countries seeking to improve the lives of their people.

What would you decide between developmental agency assistance or private investment, such as FDI from multinational corporations? Why? Explain.
            I would decide on multinational corporations because it helps jobs in the host countries.  It creates greater efficiency and lower prices on the products “Create wealth and jobs around the world. Inward investment by multinationals creates much-needed foreign currency for developing economies. They also create jobs and help raise expectations of what is possible. Their size and scale of operation enable them to benefit from economies of scale, enabling lower average costs and prices for consumers. This is particularly important in industries with very high fixed costs, such as car manufacture and airlines” (Multinational Corporations: Good or Bad? (n.d.).

References

Amacher, R., & Pate, J. (2019). Principles of Macroeconomics (2nd ed.). Retrieved from https://content.ashford.edu/

Foreign Direct Investment (FDI). (2003, November 20). Retrieved from https://www.investopedia.com/terms/f/fdi.asp

World Bank. (n.d.). Retrieved from https://www.britannica.com/topic/World-Bank

Multinational Corporations: Good or Bad? (n.d.). Retrieved from https://www.economicshelp.org/blog/538/economics/multinational-corporations-good-or-bad/

– Vishal

 

Marlene

YesterdayJul 6 at 11:40pm

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Hello Everyone,

Describe a multinational corporation and foreign direct investment (FDI).

MNC is a corporation that owns or controls the productions of goods and services in at least one country other than its home country. For example, BMW corporation production of cars in many countries, and the United States is one of them, but their home country is Germany.

FDI is an investment made by a firm or individual in one country into a business interest located in another country. For example. If I buy a share of for the Hilton hotel, which headquarter is located in the USA, but I live in Germany.  That is me having a business interest in another country.

Identify some benefits and costs for the host country from allowing a multinational corporation to locate there, despite its developing economy.

Benefits and costs would be a form of grants, loans, technical assistance, or foreign profit-seeking investments. Amache & Pate (2019) says” The United States is a major contributor to the development programs of low-income countries.” For example, the multinational corporation often chooses developing countries for access to its raw materials because this material is not easily export from the home country. Because of distance, trade policy, the benefit is multinational corporations create jobs, and increase foreign exchange. Amache & Pate (2019).

Evaluate whether developmental assistance from world developmental agencies, such as the World Bank or the United Nations, would be preferable to private investment.

It is my understanding that the United nation and the world bank provided loans to developing countries, but private investment does provide aid, loans, but at what cost. In order words, WB and UN first start by provided aid, loans, investment, once the help has been establishing the private investment come in and would continue to fund such loans, aid and investment. This is a strategy that helps developing countries grow, but because of the private investment it usually for a period of time, as the private investment wants to see a return, if no return happened it moves to another venture.

What would you decide between developmental agency assistance or private investment, such as FDI from multinational corporations? Why? Explain.

I would prefer MNC because producing good and services help the development of countries grow in their own economic, this also helps and allowing FDI to enter and invest in the development of such a country. Per NBER (2006) says United Nations data show that real-world FDI inflows grew by 17.7 percent over this same period! Additionally, MNCs mediate most world trade flows.

Marlene

Reference:

The National Bureau of Economic Research (2006) Research summary winter 2006,             Retrieve from https://www.nber.org/reporter/winter06/blonigen.html (Links to an external site.)

Amacher, R., & Pate, J. (2019). Principles of Macroeconomics (2nd ed.). Retrieved from https://content.ashford.edu/ (Links to an external site.)