The Process of Economic Development

By James M. Cypher; James L. Dietz | Go to book overview

14

Transnational corporations and economic development
After studying this chapter, you should understand:
• the variations in the types of transnational corporations (TNCs): resource dependent TNCs, commodity-trade controlling TNCs, "stand-alone" branch plants of TNCs operating under ISI programs, and integrated global production TNCs operating within core-subcontracting interfirm webs and commodity chains;
• the quantitative impact of TNCs on capital formation in poor nations;
• the qualitative impact of TNCs on capital formation, technology transfers and the organization of production;
• the costs of hosting TNCs in terms of transfer pricing, net long-term resource transfers, and diversion effects of TNCs;
• how "thin" globalization and weak backward linkages often result from hosting TNC activities;
• the reasons why hosting TNCs involves poor nations in monitoring environmentally risky and complex production processes;
• the potential for successful bargaining with TNCs, and the reasons why most host nations fail to reap the potential benefits of TNC investment;
• the role of export processing zones (EPZs), and their limited potential for contributing to successful strategies of development;
• the impact of EPZs on women workers; and
• why and how the impact of TNC activity has varied in Asia and Latin America.

Introduction

Transnational corporations, which are companies operating in two or more nations, are far from being a new or recent element of the structure of economic relationships which define the less-developed world. In the early colonial period (Chapter 3), TNCs such as the Dutch East Indies Company and the British East India Company played a major role in the economic life of Java, India, Holland, and England. Even prior to the Industrial Revolution, these early trading corporations were determined to reap profits from their near monopolistic control of certain trade routes and commodities. However, most of these early TNCs were involved in trade, not in the direct production of goods. With the onset of the second industrial

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