Globalisation , the World Economy and MNEs - Essay Example

Negative Effects of Foreign Direct Investment to the Economy The most common cost experienced due to the investment by foreign investments is the increase in the market competition for the indigenous industries. The objective of the foreign MNEs who obviously have superior economic power compared to the local industries is to maximize global competitiveness at all cost (Hill 249). Their economic basis allows them to reduce or subsidize their production costs and hence selling their products at a lower price than the local industries.

This disadvantages the local production who suffers due to lack of market for their products leading to their closure allowing the MNE to monopolize the market. The government of the will be left fighting to retain its power. The monopolizing effect and lack of local industries will eventually draw the economy into a foreign driven system where the country will depend on the decisions made by these foreign MNEs (Dicken 123). The other disadvantageous effect of foreign investments is felt on the country’s Balance of Payment.

As the MNE invest on the country’s economy, they bring in initial capital that will boost the country’s economy, but the earnings from these investments always go back to their parent country (Hill 240). Taxation is also mostly done on the parent country level, meaning that the country does not gain anything from these investments. Another effect is on the importation sector, the main offices of these MNEs are on the parent country and the foreign subsidiary receives their goods from the main office (Rojec 204).

This means that the host country will end up being importers, which debits their current accounts of the balance of payment. National sovereignty of the host country and its autonomy also faces some challenges. The MNEs will be on the forefront on the decisions affecting the economy, basing that their major interest is to maximize profit, they would not have much concerns with the economy of the host country. They would make decisions on what is best for them leading to uneven development in the country (Saggi 54).

The effort of the country’s government to still retain the decision making control on its economy will not help because they have no control over the foreign MNEs.Works citedDicken, Peter Global Shift: Mapping the Changing Contours of the World Economy:Capturing Value within Global Production Network. The University of Manchester,2011. Print Hill, McGraw the Political Economy of Foreign Direct Investment: National Differences In Political Economy, The McGraw Hill Companies, 2011.

Print Hill, McGraw The Political Economy of Foreign Direct Investment: Benefits and costs of FDI, McGraw Hill Companies, 2011. Print Rojec, Matija Subsidiary Exports: A Conceptual Framework and Empirical Evidence, Journal ofInternational Relations and Development, 2000. Print Saggi, Kamal Trade, Foreign Direct Investment, And International Technology Transfer: ASurvey, World Bank Working Paper Series in International Economics, 2000. Print