Wednesday, June 13, 2007

Inward Investment on Developing Countries

Assess the impact of inward investment by Multi national companies on developing countries. (20)

Inward investment involves increasing the capital stock and increasing the productive capacity. Therefore AS can increase, enabling higher rates of growth in the long term. The investment is important in economic models such as Harod Domar, which stress the levels of savings and investment. It is investment like this which enables economic development.

However, inward investment may not benefit developing countries as much as expected. The MNC may employ foreign staff and send profit back to a developed country.

Creates Employment. Even if the work is low paid, it is probably better than working in agriculture. This can reduce help reduce poverty and promote development. However, there may be environmental costs of the investment. Inward investment is often focused on exploiting natural resources like mining and forestry. Therefore, in the long run there can be an adverse impact on the environment of the developing country. E.g. Cattle ranches in the amazon rainforest.

Inward investment can increase AD, and increase economic growth. This can lead to a multiplier effect of rising wages and improved standards of living for other.

Inward investment may help to improve the quality of technology and managerial experience. This can be passed onto other industries, so the whole economy benefits.

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