Multinational Corporations and Their Consequences for the International Economy - Essay Example

Several studies have reported the expansion of FDI and investigated the effect of such investments on host and home economies. The objective of this essay is to analyze and discuss the consequences of multinational corporations for the international economy. The Multinational Corporation and the International Economy The multinational corporation (MNC), also called international corporation, global corporation, transnational corporation (TNC), and so on, carry out globally all the operations that involve the standing of national states in the international economy (Frieden & Lake 1999, 167).

MNCs, with their surplus of inter-firm agreements and huge number of foreign partners, reach almost all forms of economic mechanisms and nations, making it an imposing entity in today’s international economy (Levy-Livermore 1998, 147). MNCs have been expanding and advancing all over the world quite dramatically. Even though these corporations from the highly industrialized nations still control the global landscape, MNCs from the developing economies are emerging rapidly and increasingly. Thus far, there is no generally recognized definition of multinational corporation. . Firms that participate in international business, however large they may be, solely by exporting or by licensing technology are not multinational enterprises.

As an outcome of the process of liberalization, multinational corporations have been expanding rapidly in the developing economies. Almost all of the foreign partners of these corporations are located in the developing countries. The eager acceptance of national governments of MNCs suggests that these corporations serve a major function in economic growth. They significantly contribute to the improvement of the host countries’ economy, technology, exports, employment, and domestic investment.

However, even though the host countries can gain more than a few benefits from these corporations, MNCs create numerous problems especially for the developing economies. They could tear down local companies through disproportionate competition, gain control of the market through acquisition of local companies or other ways (Ravenhill 2008, 278). The MNCs’ operations and technologies which are geared toward global profit capitalization may not be suitable to the availability of resources, the size of local markets, consumption requirements, and the phase of development of a number of the developing economies.

They may bring about rapid exhaustion of volumes of valuable, nonrenewable natural resources in the host country (Frieden & Lake 1999, 165). All these highlight the importance of a code of conduct for these corporations and a binding competition rules in the host economies. In addition, a number of MNCs are suspected of human rights violation and political manipulation.