Essays /

Government Regulations For Economic Growth Essay

Essay preview

‘The best hope for developing countries to attain economic growth is through integration into the world economy. And their tool, if only they are willing to use it is the multinational company’. Discuss.

International Political Economy

The best hope for developing countries to attain economic growth is through integration into the world economy. And their tool, if only they are willing to use it is…the multinational company’. Discuss

The presence and activities of multinationals (MNCs) in developing countries has been a subject of controversy in discussions on development, politics and economics. Renewed confidence in the positive benefits of MNCs has led many countries previously resisting MNCs in the 60s, 70s and 80s to be more open in the 90s . “Governments are liberalising MNCs regimes as they have come to associate MNCs with positive effects for economic development and poverty reduction in their countries.” Of course, in practice, objectives to attract MNCs differ by country and the impact of MNCs is not always desirable. However, economic growth and industrialisation combined with an increasingly globalized world enable MNCs to become a useful tool for economic growth.

This essay will assert that within a state planned strategy of growth, integration into the world economy through collaboration with MNCs can help developing countries grow economically. This essay will dispute the claims of dependency theorists who claim that integration into the world market must lead to underdevelopment and instead suggest a modern mercantilist perspective where development benefits from a mix of state and market is the best strategy for achieving economic growth. The question is not so much whether or not to use MNCs; the case for, is overwhelming. Rather, I suggest the more pertinent question is how to use MNCs as part of a focused strategy of growth.

A broad interpretation of multinationals (MNCs) will be used; a large company that operates in more than one country, usually entailing foreign direct investment (FDI) by a corporation. This is opposed to a purely domestic business which has no operations abroad. There are estimated to be 63,000 multinational corporations in the world. Nike, IBM, General Motors and McDonalds are typical examples. Between them, they are responsible for two thirds of global trade and 80% of investment. Economic growth will be understood to mean an increase in a country’s real GDP

After independence, many former colonies were faced with issues of economic underdevelopment. Although economic development was crucial to establishing a national identity and ensure internal political stability, “political leaders often viewed former colonial powers with some suspicion.” Many leaders of the new nation states believed Western led capitalism was partly responsible for the backwardness of their state, “in some parts of the developing world, these sentiments helped shape a cautious approach to adopting Western influence and methods of economic development.” Liberal free market economies were viewed with a certain degree of scepticism and many developing countries adopted closed, protectionist economies in an attempt to grow from within.

However, without a liberal free market economy, there is little entrepreneurship or incentive to industrialise as people do not directly profit from their work. The starting position for developing countries is a largely agrarian society; Rostow suggests this is the first of five stages of growth. This pre-capitalist society existed everywhere before the industrial revolution; there is limited output because of a lack of science and technology. Rostow suggests that development requires substantial investment in capital. For the economies of developing countries to grow, the right conditions for such investment have to be created. These conditions can range from transport and communication infrastructure to tax breaks and financial incentives for MNCs to invest. If aid is given or foreign direct investment through MNCs occurs at this stage, injections of investment can lead to rapid growth. MNCs can facilitate the industrialisation process and input science and technology needed for developing countries to industrialise.

Barriers to trade have also, from a liberal perspective, prevented the development of developing countries. Whilst in many cases they have goods to export, barriers imposed by developed countries prevent profitable trade. Rather than enlarging their market, they are constrained within their domestic market. Despite the fact that the developing world received $54 billion of aid in 1990, their unequal position in world trade cost them $500 billion. If trade took place in a liberalized and free market, where people, goods and money had access to every country, greater equality between countries would exist and developing countries would be able to integrate much more easily into the world economy. Without the opportunity to break into the world economy, many developing countries will not be able to develop substantial economic growth; the cycles of poverty cannot be broken from within the domestic economy. The level of investment needed to raise productivity and incomes is not possible. Thus foreign direct investment through MNCs is essential for industrialisation enabling integration into the world economy and economic growth.

Modernization theorists and economic liberals suggest “an open economy free from political interferences is needed to help generate the large amounts of investment needed to foster sustained economic growth and development.” From a modernization perspective, foreign trade is perceived as ‘the road’ to market expansion and economic growth. They understand the need for FDI to introduce modern technology and production skills. Without integration, liberals suggest developing countries will find economic growth slow as trading within a domestic market results in a poor balance of payments. Liberals would suggest that a free market economy promotes growth and can provide the solution for developing countries to integrate into the world economy. Liberal advocates of open, global markets suggest that the free market guarantees optimal economic growth and in the long term will bring about improved living standards for everyone. Ohmae suggests that “nation states have become nothing but a nuisance in a world economy dominated by MNCs and global markets for capital, commodities and labour.” He suggests that democratic contro...

Read more

Keywords

/globalisation/multinationals 000 1.50 10 124 14.9 17 17.1 1950s 1960 1965 1970 1970s 1972 1977 1980 1980s 1983 1984 1987 1990 1990s 1991 1993 1994 1995 1997 1997/1998 1998 1999 2.30 2000 2001 2003 21st 23 25 25.7 29.1 30 38 4 46.7 5.3 50 50.5 500 5057 51.5 51.8 54 60s 63 63.4 69 70 70s 8 80 80s 82 87.2 9 90s 98.4 a.host abl abroad absolut abund accept access accord accumul achiev acquir activ actual acut addison addison-wesley addit address adopt advantag advoc affect affiair afford africa ago agrarian agricultur ahead aid aim al alli allow alon alongsid also altfeld although alway america amin amongst amount anoth antithesi appeal approach arena asian aspect assert assess associ attack attain attempt attract attribut authoritarian automat autonom autonomi avail averag awar back backward bad balaam balanc barrier base bear becom begin begun believ benefici benefit best best-practic bibliographi billion blow book borenszstein botswana boundari brand break bring broad broken built bureau busi by-product cambridg cannot capabl capit capitalis capitalist captur care case cater caus cautious cent centralis centuri cerni certain chang channel cheap cheapli chirot choic chose chosen claim clear close cluster collabor coloni combat combin come commerci commit commod commodif communic communist compani compar comparison compet competit complement complet complimentari conclus condit confid consequ consid consider consist constrain construct consum contemporari contend context continu contrari contrast contribut control controversi convers cooper cornel corpor correct correl cost could counter countri cours creat creation crisi critic critiqu crucial cultur current custom cut cycl d daedalus de dealt debt decad decentralis defect defin degre del demand democraci democrat depend dependencia desarrollo describ deserv desir despit determin develop development differ dilemma direct discuss disintegr dispos disput distort distribut doctrin documentari dollar domest domin doubl doubt dun dynam e earlier earn easili eastern econom economi economica ed edg effect effici effort either electron elsewher embrac emerg employ employe en enabl encourag enhanc enlarg ensur entail enterpris entrap entrepreneurship equal equip equit essay essenti establish estat estim et europ even eventu everi everyon everywher evil evolv exact exampl exchang exert exist expans expect expens experienc explan exploit export export-intens extent face facilit fact factor failur famous far favor favour fdi februari fee fifti fill financ financi find firm first five flight flow focus focuss follow forc foreign foreign-own form formal former forti foster found framework frank free function furthermor g gain gap gdp general generat gilpin give given global globalis go good govern greater gregorio gross grow growth guarante h halperin happen harcot harm hart harvard headquart held help henc high high-tech higher highlight hope host howev hungri hymer ibm ident identifi illustr immedi impact import impos improv inauthent incent incom increas inde independ indigen indonesia industri industrialis inequ inevit inflow influenc infrastructur inject input insofar instanc instead institut integr intens intensifi intent interconnected interest interfer intern interpret intervent intrins introduc introduct invest inward issu j jackson jaguarib job journal k key kick knock knock-on koh korea kukreja la labour lack lal larg las last late latina law ldcs lead leader leadership leagu least led lee left less level liber liberalis like limit linkag littl live local locat london long longman look loss lotfian low lower m macmillan macroeconom made main maintain make manag mani manifesto manipul manufactur march mardom market markusen marx marxist mass materi maximis may mcdonald mean meet mercantilist method mexico mid middl might million mirror mistak mix mncs model modern money motor move much multin multipli must mutual name nation natur near necessari necessarili necessit need negat negoti neither neo neo-liber neo-marxist new nigeria nike no.2 non non-communist non-manufactur none norberg north noth nuisanc number object oblig obtain occur offer often ohma one open oper opportun oppos optim option order origin other otherwis outflow outmod output outsid outstand overal oversea overwhelm own p.structuring page paper part parti past path pay payment peopl per perceiv percent perhap perpetu perspect pertin philanthrop pilger.carlton.com pilger.carlton.com/globalisation/multinationals place plan play plenti polici polit politca poor poorer popul posit possibl potenti poverti power practic pragmat pre pre-capitalist pre-defin prepar presenc press prevent previous price primari primarili princetown prioriti pro pro-act problem process produc product profit programm promot propos prospect prosper protect protection protectionist provid proxim public publish pure pursu pursuit question quicker quit r radic rais rang rapid rate rather readili real realist reap reason receiv recognis record reduct regard regim region regul relacion relat reli renew report requir research resist resourc respons rest restrict result return revenu review revolut reward rich right rise risen risk rival road role root rostow rout routledg royalti run s.the safarian sahara santo scale sceptic school scienc sector see seek seen sell sens sensibl sentiment septemb serious serv servic shape share short show shown shun signific similar simpli singapor situat skill slow small social socialist societi solut sophist sorensen south soviet spain special specialis spend spero sphere spillov spread stabil staff stage stagnat standard start state steer step still stimul stock stone strang strateg strategi strength strong struck structur struggl studi sub sub-sahara subject subsidiari substanti substitut success suffer suffici suggest suitor sunday suppli support suspicion sustain switch system systemat t.la tabl tailor taiwan take taken tariff tax tech technolog ten tendenc term territori thailand theori theorist thing third throughout thus tie tiger tight time togeth took tool total toward trade train transfer transform transnat transport tri twenti twentieth two type typic unavail unctad underdevelop undermin underplay understand understood undoubt unequ uneven unfavour unfortun uniqu unit univers unjustifi unlik unregul urban us use usual vari vehicl veld vesseth viabl view virtual vol w wage wale want wasn way weak wealth well wesley west western whether whilst whole will within without work worker workforc world worst would wouldn wrong y year yet yeung zed