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What Benefits Do MNCs Accrue to Developing Countries?

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One of the benefits of MNCs is the capacity to inject into the local economy. If an MNC is established in a country or invest in an area, it may result in a significant injection into the local economy. This may provide jobs directly or through the growth of local ancillary businesses such as banks and insurance. Such investment is likely to initiate multiplier process generating more income as newly employed workers spend their wages on consumption and other economic activities.

MNCs may also provide training and education for employees thus creating a higher skilled labour force. These skills may be transferred to other areas of the host country, which adds into the stocks of skills within the community, and the country in general. It is proven that management and entrepreneurial skills learnt from MNCs are an important source of human capital.

MNCs are also credited for paying taxes and contributing to government revenue. Since MNCs mostly have huge turnovers and in most cases declared considerable amounts of profits, the corporate tax which the government collects from them is generally higher. In addition, in a situation where the products produced by the MNCs are sold locally the sale attracts a sale tax which also adds to government revenue, this is true even if the MNCs products are exported as there is always export duty to be paid, especially where such is not part of incentive scheme. Furthermore, MNCs contributes to government revenue if they purchase existing national assets through the privatization process.

It has also been argued severally especially by the outward oriented economists, that the cycles of poverty will not be broken from within the domestic economy. Such arguments maintain that the level of investment needed to raise productivity and incomes capable of breaking the vicious cycle of poverty cannot be mobilized from within the economy. This argument follows the big push theory. In such a situation, foreign direct investment through the MNC investment is essential.

Kavungya answered the question on May 2, 2019 at 12:42

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What Benefits Do MNCs Accrue to Developing Countries?

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