Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
Influence of multinational companies on developing countries
The impact of multinationals
Influence of multinational companies on developing countries
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Throughout the 20th century Latin America has been a virtual laboratory of development strategies. The principal objective was to discover the solution for the economic puzzle of the region. When attempting to explain underdevelopment, the interaction between the state and the market has been at the core of several theorists. There have been different economic approaches implemented to tackle this issue. Each of them would differ in the degree of importance of external economic relations in their national economies, as well as, the degree of intervention of the government. In the 1950s, responding to Prebisch’s Dependency Theory Latin American governments implemented Import Substitution Industrialization (ISI). Which was a strategy focused …show more content…
Indeed, even though import substitution was supposed to reduce reliance on world trade, every nation needed to import something not available locally – raw materials, machinery, spare parts. Hence, countries needed to export in order to be able to buy imports, which ISI did not allow. As a result, trade protection and overvalued exchange rates raised domestic prices and made exports less competitive, and export taxes discourages foreign sales. Moreover, the faster the economy grew, the more it needed imports. But exports could not keep up with imports, and so the country ran out of foreign currency as a consequence of this deficit on the balance of payments. The government restricted imports to essentials and raised interest rates to bring money into the country. The result was usually a deep recession. Companies under pressure cut wages and laid off workers. Furthermore, since governments subsidized industrial investment, gave tax breaks to industrial investors, and targeted spending at politically import groups, there was a substantial budget deficits and inflation. These budget deficits were usually covered by monetary policies, where the resulting inflation made domestic goods more expensive, reducing exports still …show more content…
However, Multinational Corporations (MNCs) brought several contradictions to development in Latin America. For instance, increasing dependency on these companies, preventing domestic entrepreneurship and committing human rights abuses. Moreover, on their research, Wacziarg and Welch discovered that the GDP ratio on average increased approximately 5% (2003: 28). On the contrary, alternative “development economists noted that economic growth, if left to market forces alone, tends to be accompanied by increased inequality” (Thorbecke and Nissanke 2008: 158). Indeed, around the 2000s – a decade after the implementation of export oriented strategy – the average Gini coefficient in Latin America was 0.54. Compared, with the Gini for 1990, 0.52 (Franko 2007:
It is well known fact that poverty is an ongoing battle in Latin America and The Caribbean. According to the Economic Commission for Latin America and the Caribbean 167 million people live in poverty in the region (ECLAC). But another 66 million people will be living under extreme poverty (ECLAC). Although reports a gearing towards a decline in poverty in Latin America and the Caribbean these numbers are still grand. Many factors play into this situation. The blame put on the lack of education, lack of environmental resources, or economical declines, the list can go on. Are the governments in these regions doing enough to combat poverty with these issues on hand? Poverty will continue to be highly debated topic in these regions with little progress being seen. Even though there have been measures proposed and implemented to combat poverty. It seen as the old story being rewritten, the dynamics surrounding this issue by might be different. It can be said that poverty is not caused by one sole issue, when looking at the as a whole. But in everyday life economic problems of Latin America and the Caribbean can be seen as issues that can be solved separately. Although these issues can be examined separately and do affect individuals differently, these issues can be traced back to one another.
The causes of this recession was due to the unemployment being too high and how it had rose even higher through the years. The unemployment rate was at 4.9% by the fourth quarter and rose significantly at 8.3% by the fourth quarter of 1975. This recession was quite severe since World War II. There has to be a cause of why the unemployment rate was continuing to rise and the reason for this recession, was the decline in the investment purchases. The GDP continued to fall because of the decline in investment.
Neoliberalism is a form of economic liberalism that emphasizes the efficiency of private enterprise, liberalized trade, and relatively open markets. Neoliberals seek to maximize the role of the private sector in determining the political/economic priorities of the world and are generally supporters of economic globalization. During the 1930s and the late 1970s most Latin American countries used the import substitution industrialization model to build industry and reduce dependency on imports from foreign countries. The result of the model in these c...
Sheahen, John. 1987. Patterns of Development in Latin America: Poverty, Repression, and Economic Strategy. Princeton, N.J. Princeton University Press.
...hese will lay the groundwork for closing Brazil’s gaps in productivity and development statistics. However, the government may also want to consider balancing the factor inputs of its subsidized industries. Businesses must be allowed to capitalize on labor abundance and provide formal employment for Brazil’s working class, rather than incentivized to replace them with expensive capital, subsidized by the government with the highest public debt in South America. Even traditional development theories show us that this is a sustainable way to increase wages in the long term, as has been shown by South Korea and Chile. Though there is no guarantee the same model will work for Brazil, it poses an interesting question about the dynamics of the country’s development from a microeconomic perspective, and suggests a path to industrialization not yet fully embraced by Brazil.
Latin American Independence was the drive for independence from Spain and France by the Latin American people. There were many contributing factors that ultimately led to the uprising of Latin American colonies. Europe's strong hold on the economic and political life of Latin America, was creating friction between the Latin Colonies and the European nations. Eventually, this would become enough for the Latin American people and the drive for independence from France and Spain would begin.
The political power has had enormous affect to the Latin American economy. Most of the countries in the Latin America remained colonies for over a long period of time; therefore, they were controlled by the Europeans power. These colonies never thought of development of the Latin American countries, rather all wealth from the colonies was taken out to the home country. This situation is similar to other colonized continents such as Asia and Africa. Almost every colonized country in the world is still in the process of development. These countries were never benefited economically from the colonizers. Therefore, the historic imperialism is still harming countries in the Latin America as well as they are still underdeveloped. According to Marxist theory “The colonies were used as places to invest surplus capital and sell goods from the colonizing countries and as sources of cheap raw materials and cheap labor.”(P165) Therefore, the investors will always get high benefits from their investment; however, the raw materials will get low prices for it. Hence, still Latin American countries face various problems due to the excessive use of natural resources and due to late from the Europeans
Bian (2002) also pointed out that due to the misestimating of economy situation, the government thought that Japan had started to get out of the recession. Therefore, government turned to tight the fiscal policy by raising the tax of consumption and also cancel the reduction of income tax. The economy of Japan was affected terribly with negative growth of the economy, and the deflation become much more serious.
In the late 1700s, the revolutionary fever that gripped Western Europe had spread to Latin America. There discontent was rooted in the social, racial, and political system that had emerged during the 300 years of spanish rule. Latin American countries wanted to be free from Europe rule, as well as the American colonies. Latin America gained its encouragement from two independence movements which were from the American Revolution (1700s) and the French Revolution (1789). What caused Latin America to seek its independence was precursor movements, colonial policies, european influences, and the european events. American Revolution, Haitian Revolution, and Internal Revolts Uprising led to the precursor movements. Napoleons invasion, French Revolution,
Huberman, Leo "Latin America & underdevelopment - history of American economic involvement in Latin America" 2003
There is a bright side to this though; with the continued downward spiral of importable goods this forced a change in the production of many Latin American countries. The change was basically the fact that with limited import ability the local peoples of individual countries were able to go to work in order to pick up the slack in available goods. This fostered a health industrial environment and put many people to work and opened new business ventures inside the borders of each country. History shows us that international trade is not always the most guaranteed route to national security or secure finances. Perhaps we could learn a lesson from this ourselves, if a country can maintain the ability to produce its own needs then it can weather severe economic storms more readily.
Each country in the world has experienced different economic situations. For example, some experienced unemployment, high inflation rates, while others faced bankruptcy, slow economic growth and many others, which are directly linked to their economy. In the following paragraphs, the economic situation of Colombia would be analyzed to get an insight on how this country is doing economically. Colombia is situated in South America and has the third largest population (around 48 million) of all Latin America (Agriculture and Agri-Food Canada, p.2, 2013). Economically, Colombia has a nominal GDP of around $370 billion (USD dollars), according to the World Factbook (2012), making it the 30th economy in the world and among the top ones in Latin America, but its GDP per capita is around $11 000 ranking 110th compared to the world, in part because there are large inequalities among rich and poor. Currently, Colombia is a free market with many natural resources in their disposition, but they are highly dependent on their oil exportations for their economy as they exported to their principal buyer (United States), “332 000 barrels per day in the year 2000” (Encyclopedia of the Nations, 2013). However, their economy is also based on mining, agriculture and manufacturing. Nowadays, Colombia is mainly experiencing problems with, large income inequality and investment security, which could be resolved in part with modifications in the current fiscal policies and a raise in human capital. To better understand the aforementioned main problems, the causes and consequences of each problem would be analyzed and supported by statistics. Finally, some solutions would be proposed in order to resolve, to a certain extent, the problems faced by Colombia...
Around the 1930s, Brazil and Latin American began following the process of Import Substitution Industrialization, which lasted until the end of the 1980s. The ISI policies devaluated the currency in order to boost exports and discourage imports, followed by adopting different exchange rates for goods (Watkins). ISI in Brazil had an interesting effect; it created a three-prong system of governmental, private, and foreign capital being directed at the infrastructure and heavy industry, manufacturing goods, and the production of durable goods. The program worked at first but then became a serious economic problem. When the 1980s came around Brazil realized that ISI policies lead to inefficient industries because of their lack of exposure to international competition, the policies ignoring the rural sector, and finally limiting the local producers. Following the end of the ISI policies, Brazil went through many plans to correct the economy and none seemed to work until the Real Plan made real changes to the country.
...nt of the CPI, which ultimately led to a decay of inflation to 11.8%, an additional miss of the single digit target in 2002. There was also conversation rate immovability coupled with a decline in the prime rate which was presented during the NPP government in 2004 to exchange the bank rate. This replicated in a fall in interest rates which is a lift to savings and general productivity of the economy.
The backbone of the economic disasters experienced in South America were due to import substitution industrialization (ISI) policies. These policies caused a slew of problems, the most notable being trade deficits, high inflation rates, and reduced foreign and domestic investment. The trade deficits were caused by overvalued exchange rates used to keep imports artificially cheap, the inflation was caused by high state spending and poor taxation, and the reduced investment was caused by the previous two factors. All in all, these crises led to a dependence on foreign capital in the form of investment or