The Multinational Enterprise in Developing Countries - Assignment Example

Macro & Micro economics Topic Over 12, was the output gap a cause for concern? Over the years, economists have made projections of the assumed Gross Domestic Product they expect to get at the end of the year based on certain micro and macro economic indicators and factors. This type of assumed Gross Domestic Product is often referred to as potential gross domestic product and is often presented in budget statements (Thoma, 2012). It has however not always turned out that the potential gross domestic product values are achieved.

In nominal terms, the projected gross domestic product would either be above the projected value or below the value. This where an output gap exists in the difference between projected gross domestic and the actual gross domestic product or actual output. If all calculations and estimations were right, then output gaps that produce positive or negative values should be of great concern to economists and be the basis for decision making. They should also give a source of concern to economists and predict the trend of macro and micro economic growth.

On the whole, an inflationary gap, which is a representation of positive output gap measure, is an indication of growing demand over supply and subsequently an indication of inflation (Lipsey and Chrystal, 2007, p. 423). A recessionary gap, which is on the other hand a representation of negative output gap, indicates deflation in the economy (Lipsey and Chrystal, 2007, p. 423). For the year 2011 and 2012 therefore, the output gap cannot be brushed over easily without concern for worry. This is especially because in most jurisdictions of global economic giants such as the United States and United Kingdom, the output gap was said to be negative, indicating a recessionary gap (Thoma, 2012).

In fact apart from deflation, there is the concern over unemployment when a recessionary gap is experienced. Unemployment should be a major cause for concern for a number of reasons. In the first place, the recessionary gap is an indication that because a lot of people were not in employable positions, the State could not make good of their input into the economy and so their part of the ratio of input in gross domestic product to balance the output gap was missing. The government is denied fiscal inputs from unemployed citizens because due to their lack of jobs, the government is denied important tax revenue from them.

So apart from the fact that unemployment affects the lives of the unemployed by making his living conditions extremely difficult; the government also has a resulting effect. One other cause of concern is for government to be forced to repackage future budgets in such a way that aims at attracting and creating more jobs. What this means is that other government expenditure are always affect by output gap values when they create negations. A major justification in the relationship between recessionary gap and unemployment is given in the Okun’s Law, which states that “It states that for every one percent increase in unemployment above a "natural" level, that GDP will decrease by anywhere from two to four percent from its potential” (Hill, 2012).

REFERENCE LIST Hill A, 2012, What is Okun’s Law? Wise Geeks. [Online] http://www.wisegeek.com/what-is-okuns-law.htm [May 17, 2012] Thoma B, 2012 The Zero Lower Bound and Output Gap Uncertainty [Online] http://economistsview.typepad.com/economistsview/2012/05/the-zero-lower-bound-and-output-gap-uncertainty.html [May 18, 2012] Richard G. Lipsey and Alec Chrystal. Economics. Oxford University Press. 11th edition. January 2007. 2. Examine whether the allure of the developing world to multinational enterprises has been affected events over the period 2011/12?

In recent times, economic statistics show that there has been a developing situation whereby most developing nations are aligning themselves to international enterprises in terms of economic trade (quote). Generally, when there is such an enterprise, we have the formation of a multinational enterprise. Multinational enterprises are very healthy for the promotion of economic growth in developing growth. This is because multinational enterprises constitute a major form of foreign direct investments for the developing nations.

As developing nations, the inputs made by developing nations in terms of investments cannot be overestimated as essential source of economic growth. If for nothing at all, the presence of multinational enterprises creates the atmosphere for the creation of employment. The long term effect of such employment opening is the betterment of the lives of citizens in the developing countries. It is in light of this that Ijjasz-Vasquez and Litvin (2003) observe that “multinational corporations (MNCs) can spur economic activities in developing countries and provide an opportunity to improve the qualities of life, economic growth, and regional and global commons.

” Going deep into the micro and macro economic fortunes of host countries, multinational economies help in the determination of key economic factors including inflation, interest rate and exchange rate because of the competition they present the local markets. Regardless of the benefits of the presence of multinational enterprises in developing countries, the 2011/12 has not seems to be a very favorable one for the promotion of multination trade. This is due to certain economic events that the world has experienced.

A typical example of such an event is the slow rate of recovery that most developed nations are having from the global economic crisis. What is more, the Euro debt crisis is another major event that has affected multinational enterprises in developing countries (Molz, Ratiu and Taleb, 2012, p. 82). Because most developed economies are having their own troubles in dealing with their local economies, the need to go into joint ventures in developing countries has not really become a lucrative idea to them.

As a matter of fact, the Euro debt crisis has created a phenomenon whereby most European countries are trying to ‘be their brother’s keepers’ instead of their ‘friends’ keepers’. What this means is that European countries are helping each other rather than helping external and undeveloped countries. What is more, most of these enterprises in developed countries are shying away from investing in developing economies because of the fear that they may fail as the developing economies are also having their own troubles dealing with recovery from the global economic crisis.

On their part, Molz, Ratiu and Taleb (2012 p. 122) touch on an event they describe as local versus global logic as another event in the 2011 and 2012 season that has had worse effect on multinational enterprise openings in developing economies. This local versus global logic has been a situation in 2011 and 2012 whereby most developed countries are experiencing extremely diverging policies in economic and trade establishments from developing countries. What this means is that in most developed countries, the kind of economic climate that has been created to promote local enterprises is different from what exists in developing countries and so there hardly is telepathy between they two destinations.

To this end, the writers state that “MNEs from industrialized economies in developing countries and emerging markets face particularly challenging hurdles due to both economic and institutional discrepancies between their home and host countries.” In conclusion, until there will be a clear cut economic policies in developing countries to match up what exists in developed to attract foreign investors, there might continue to be declines in multinational enterprises in developing countries.

REFERENCE LIST Ijjasz-Vasquez E. J. and Litvin D. 2002, Multinational Corporations in Developing Countries and Corporate Social Responsibility [Online] http://info.worldbank.org/etools/bSPAN/presentationView.asp?EID=417&PID=827 [May 18, 2012] Molz R, Ratiu C and Taleb A. 2010, The Multinational Enterprise in Developing Countries, Routledge: London Instructions: