Nov 2023 P42 Q4 | The presence of multinational corporations (MNCs) in a low-income country always promotes economic growth in that country. Evaluate this statement. [20] by Qistina

Advantages of MNCs

beescuitse — 2025-06-19 03:22:23 UTC

Bring in new tech, ideas - ⬆️ GDP & Exports. MNCs may use the low income country as a base for exports especially if labour is cheaper. This increase the country’s exports, export revenue ⬆️ AD⬆️
Helps to reduce income inequality → if MNC sets up in low income countries → may help to raise productivity and wages → with more job opportunities and transfer of technology

Provide FDI → bring in new technologies and techniques to produce goods → increase workers’ productivity and skills thus resulting in them to be employed more easily → will benefit the low income country as they → lack savings to finance investment to purchase capital equipment

Purchase capital equipment and help to develop the country's infrastructure → government invest in infrastructure → support foreign operations → bring positive externalities → job opportunities rise → reduce poverty → SOL rise

Increase job opportunities → unemployment and underemployment falls → income rises → AD rise → economic growth rises

Govt. tax revenue rises → from corporate and income taxes → Govt. can use tax revenue to invest in other sectors such as education and healthcare

beescuitse — 2025-06-19 03:24:46 UTC

In summary,

MNCs can promote economic growth by:

Bringing in new technology
Creating job opportunities
Increasing exports

However this growth is not always sustainable because:

Reducing domestic benefits
Depletion of non-renewable resources
Externalities

Therefore, MNCs do not always promote long-term economic growth.

ariesyazhafirahhalawi — 2025-06-19 04:53:25 UTC

Economic growth:

Actual growth: increases real GDP. How?

Using previously unemployed resources
Reallocating existing resources into more productive areas
Using new or improved resources

Potential growth: increases the ability of the eco. to produce G&S by increasing the quantity and/or quality of resources. It is illustrated by outward shift of PPC or LRAC.

Multinational corporations:

Large firms that operate in more than one country. Low income countries are countries that have low GNP per capita
They often aim to attract MNCs by improving their investment.

Disadvantages of MNCs

ariesyazhafirahhalawi — 2025-06-19 04:54:59 UTC

May not create higher employment & higher income if they replace domestic firms. MNCs may create jobs but most are capital intensive and use advanced machinery, which reduces the need for large numbers of workers. Small domestic firms may not be able to compete with large MNCs. Furthermore, they may employ foreign managers or bring in skilled workers from their home country, reducing domestic benefit.

Deplete non-renewable resources. Some MNCs may exploit natural resources (fossil fuel, mining etc) these can lead to deforestation and depletion of non-renewable resources.

MNCs may remit a large share of their profits back to their home countries → therefore, a significant portion of financial gain from FDI does not remain in host country → multiplier effect falls → NI falls → economic growth falls

To attract MNCs → Govt. in low-income countries offer financial incentives → Govt. revenue fall → other projects put on hold → economic growth may not rise

MNC may give out lower wages and provide poor working conditions for labours → SOL fall → motivation to produce falls → productivity falls → economic growth falls

May create externalities → eg. deforestation, intensive agriculture, mining, pollution → impact local ecosystems and communities.