Transnational corporations and states
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Transnational Corporations and States Costs and benefits to: host economies home economies the bargaining relationship between TNCs and states TNC impacts on host economies Alternative perspectives empirical findings Why? ---sensitivity to precise statistical techniques used

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Transnational corporations and states l.jpg
Transnational Corporations and States

  • Costs and benefits to:

    • host economies

    • home economies

  • the bargaining relationship between TNCs and states


Tnc impacts on host economies l.jpg
TNC impacts on host economies

  • Alternative perspectives

  • empirical findings

  • Why? ---sensitivity to precise statistical techniques used


Dicken s perspective outcomes are contingent on l.jpg
Dicken’s perspectiveoutcomes are CONTINGENT on:

  • Nature of TNC investment

  • Nature of host economy

  • dimensions of impact of concern


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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.


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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.???


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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


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Trade and Linkages

  • The linkage issue

  • factors include:

    • overall TNC strategy

    • chars. of host economy

    • time

      • Japanese auto transplant example


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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


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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.


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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 ???


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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


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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?




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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%)


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Moral of the tale???

Danger of making sweeping generalizations about TNC impacts on host economies


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