Economic Effects of Multinational Corporations

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A multinational corporation is a company with established branches in more than one country. As of 2006, there were 63,000 multinational corporations with over 700,000 branches scattered across the globe, according to the United Nations Conference on Trade and Development.

Employment

When multinational corporations invest in a country they create employment opportunities. They account for increased incomes and expenditures in the economy of the host country stimulating growth. Workers also benefit from technology transfer as new machinery is imported into the host country. Multinational corporations control over 25 percent of world output and provide 86 million jobs, according to the World Trade Organization.

Taxation Revenues

Countries that host multinational corporations also benefit from tax revenues from the companies.

Improving the Balance of Payment

Balance of payment refers to an accounting record of a country’s exports and imports. The country that hosts a multinational corporation is likely to have an improved balance of payment. When multinational corporations invest in the host country they promote direct flow of capital into the host country. The multinational corporation may also eventually begin exporting products made in the host country.

Controlling Local Economy

Multinational corporations have the freedom to shift their locations at will; giving them the advantage to exert pressure over countries in which they operate when faced situations that affect their interests. In developing countries where multinational corporations have become the major employers and wealth creators, they might oppose attempts by the host country to improve worker’s salaries, tighten environmental regulations, demand a higher share of the profits through taxation or liberalize the right of workers to organize if those moves are seen as against their interests. If the host country declines to bend to the multinational corporation's wishes, the company may threaten to withdraw or throw its political and economic influence behind political elements in the host country more amenable to the multinational corporation's point of view. Multinational corporations in South and Central America were often accused in the 1950s, '60s and '70s of supporting repressive regimes in order to continue a profitable relationship with the host country.

Increased Productivity

Multinational corporations promote productivity and efficiency in the host country. This happens when they import new technology into the countries they operate in. As a result, this will increase competition as the local firms will as well try to imitate their technologies or hire workers initially trained by multinational corporations. Competition between the local firms and the multinational corporations will cause them to improve their products or even adopt new technology.

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