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Transnational Corporations and States

Transnational Corporations and States

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Transnational Corporations and States

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  1. Transnational Corporations and States • Costs and benefits to: • host economies • home economies • the bargaining relationship between TNCs and states

  2. TNC impacts on host economies • Alternative perspectives • empirical findings • Why? ---sensitivity to precise statistical techniques used

  3. Dicken’s perspectiveoutcomes are CONTINGENT on: • Nature of TNC investment • Nature of host economy • dimensions of impact of concern

  4. Conceptual framework Dicken: Figure 8.2 Nature of host economy:level of dev., size of economy, resource base, techn. Base, social, political, cultural chars. etc.

  5. Capital and Finance • Distinction between gross and net capital flows • significant capital is raised locally • credit may be cheap • host economies lose capital • remissions of earnings and profits • various incentives offered to entice investment must be subtracted • how recoverable? --- given transfer pricing problem etc.???

  6. Technology--Issues • Reluctance of TNC to transfer best current production technology • constraints on transfer of technology to other parts of host economy • appropriateness of technology that is transferred • issue of capital intensity • environmental and health hazards risks • appropriateness of products transferred

  7. Trade and Linkages • The linkage issue • factors include: • overall TNC strategy • chars. of host economy • time • Japanese auto transplant example

  8. Mexican maquiladoras example • 1965---NAFTA (mid 1990s) • local content consistently < 2% of total purchases of material inputs • compare South Korea (33%) and Taiwan (27%) • factors • high prices • inadequate quality • unpredictable delivery

  9. Deeper factors • Mexican inputs purchased by maquilas were subject to a 15% value added tax • Mexican suppliers had to import more raw materials and faced higher import duties • cost of Mexican inputs counted as part of value added in Mexico--import tariffs on entry to USA • purchasing decision-making was usually handled by corporate purchasing offices.

  10. Implication of linkages for balance of payments Balance of payments equals Capital goods imports + materials imports + royalties paid abroad + dividends and interest sent abroad Exports + Imports of capital --- Issue of domestic sales ???

  11. Industrial Structure and Entrepreneurship • impact is most pronounced in dualistic economies • industrial concentration is likely to increase • why? TNCs may increase barriers to entry • introduce brand goods • may use predatory pricing thanks to resources of parent company • stimulates defensive mergers by local firms

  12. Employment and labor Impacts and Issues • Does a plant create new jobs? • What kinds of jobs? • Do TNCs pay higher wages? • Do TNCs operate acceptable systems of labor relations? • Are TNCs likely to offer STABLE employment opportunities?

  13. Estimating TOTAL employment impacts

  14. Fuentes model

  15. Application to Mexican maquiladoras--1989 • Direct employment was 450,000 • indirect employment --515,000 • wage and salary expends (84%) • purchase of local services (15%) • purchases of local inputs (1%)

  16. Moral of the tale??? Danger of making sweeping generalizations about TNC impacts on host economies