Transnational Corporations and States

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 perspectiveoutcomes are

CONTINGENT on:• Nature of TNC investment• Nature of host economy• dimensions of impact of concern

Conceptual framework

Nature of host economy:level of dev., size of economy, resource base, techn. Base, social, political, cultural chars. etc.

Dicken:

Figure 8.2

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

+

Imports of capital

Capital goods imports +

materials imports +

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