Negative role (implications)/disadvantages/demerits of Foreign Direct investments and Multinational Corporations in developing countries
- They promote regional income inequalities in economy. This is because most of the production, and business activities of foreign investors are mainly concentrated in urban areas neglecting the rural areas. This creates regional imbalance.
- They lead to profit repatriation. Private foreign investors take back. The profits made to their home countries instead of re-investing them in the countries where they operate. This leads to low capital accumulation in the economy.
- They undermine the provision of basic essential goods and services which are non-profit making. This is because they aim at venturing in activities which are profit maximizing.
- They lead to technological unemployment. This is due to increased use of capital- intensive techniques of production and inefficient firms being pushed out of the production process due to stiff competition.
- They lead to emergence of private foreign monopolies. This increases consumer exploitation as private foreign monopolies restrict output and charge high prices with the aim of maximizing profits.
- They lead to rural-urban migration. This is because most of the business activities of foreign investors are concentrated in urban centers due to poor infrastructure in rural areas. This leads to congestion and increased cost of living in urban areas.
- They lead to over dependence of the economy on developed countries. This increases foreign dominance and control of the economy in terms of resources and economic decisions through foreign direct investments.
- They lead to divergence between private and society interests. This is because private foreign investors aim at maximizing profits at the expense of the society. In the process, they cause negative externalities in form of environmental degradation and depletion of natural resources hence failure of the economy to be self-sustaining in the long-run.
- They out compete the local investors. This is because foreign investors have huge capital and they have the capacity to operate on a large scale. They have the ability to reduce prices of their products to a much lower level than the local investors and this undermines the growth of local firms.
- They interfere in the politics of developing countries. Foreign investors use their economic power to influence national policies and politics of the countries in which they operate in their favor. This results into loss of independence in local decision making.
- They reduce the net benefits in real terms of foreign capital investments. This is because the foreign investors ask for too much tax concession inform of tax holidays, investment incentives, subsidies and protection from the outside competitors. This makes it costly to the government.
CATEGORIES Economics
TAGS Dr. Bbosa Science
