What role do TNCs play?

Answer 1

Transnational corporations (TNCs) play a significant role in the global economy by operating across national boundaries, driving international trade, investment, and innovation. They contribute to job creation, technology transfer, and infrastructure development in host countries, but also face criticism for exploiting resources, creating environmental damage, and contributing to income inequality. TNCs often have a major influence on government policies and regulations due to their economic power and influence.

Answer 2

Transnational corporations have become central organizers of economic activities and major actors in shaping the international division of labor. They perform this role through foreign direct investment in the host country enterprises (UNCTAD, 1992). TNCs can undertake FDI in a host country in either of two ways: greenfield investment in a new facility, or acquiring or merging with an existing local firm. (UNCTAD , 2000)

By most measures TNCs play a larger role in the world economy today than they did in the past in terms and in relation to key economic indicators such as Gross Domestic Product (GDP), exports and domestic capital formation in the world economy as a whole and in the host countries both developed and developing (UNCTAD, 1992)

Various international organizations and foreign advisors recommend developing countries to rely primarily on foreign direct investment (FDI) as a source of external finance. They argue that, for several reasons, FDI stimulates economic growth more than other types of capital inflows. In particular, FDI is supposed to be less volatile, and to offer not just capital but also access to modern technology and know-how. However, it is surprisingly hard to come by empirical evidence supporting this policy advice. Some studies find a positive relationship between FDI inflows and economic growth in host economies. (Caves, 1996).