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
Dicken’s perspective
outcomes are CONTINGENT on:
• Nature of TNC investment
• Nature of host economy
• dimensions of impact of concern
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.
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.???
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
Trade and Linkages
• The linkage issue
• factors include:
– overall TNC strategy
– chars. of host economy
– time
• Japanese auto transplant example
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
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.
Implication of linkages for
balance of payments
Balance of payments equals
Exports
Capital goods imports +
+
materials imports +
Imports of
capital
---
royalties paid abroad +
dividends and interest
sent abroad
Issue of domestic sales ???
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
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?
Estimating TOTAL employment
impacts
Fuentes model
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%)
Moral of the tale???
Danger of making
sweeping generalizations
about TNC impacts on host
economies