209714043-International-Economics.docx - INTERNATIONAL...

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INTERNATIONAL CAPITAL MOVEMENTS AND MULTINATIONAL CORPORATION A. Introduction It is a well known fact that economic liberalization all over the world, particularly since the late 1980’s, has tremendously contributed to the mobility of capital across the countries. The assumption of the classical economists that there is factor immobility between the countries has been proved to be unrealistic. This is particularly so as for as the mobility of capital is concerned. Foreign capital and technology play a crucial role in the socio-economic development of a country. In the last twenty years, the world has witnessed sea changes in the international movement of capital especially though the Multinational Corporations. International investments have become the order or the day all over the world and have become powerful driving force behind the economic development of many countries. International economic integration has been facilitated by tremendous cross-border flows of capital, both private and official. Economic reforms and the far-reaching changes in the political scenario have brought about substantial changes in international capital flows. The importance of international capital flows could be summed up by quoting the well known management experts, Peter Drucker. Accor4ding to him, “……. Increasingly world investment rather than world trade will be driving the international economy”. This chapter focuses attention on the role, types, determinants and limitations of international capital flows and examines the part played by the Multinational Corporations in the developing economies. B. Role of International Capital Flows International capital flows or movements, in their diverse forms, have been the catalyst of world’s economic development. The role of international capital movements is clear from their advantages explained below: 1. Internationalization of the World Economy : In the first place, international capital flows have been largely contributing for the internationalization of the world economy. This has been possibly by the impact of foreign capital on business environment. The massive inflow of international capital has led to a significant increase in global production, employment and trade. All this has considerably contributed to the internationalization of the world economy. Undoubtedly, the ‘opening up’ of economies has been encouraged by international capital inflows. 2. Advantages to Domestic Labour : International investment is considered to be a boon to domestic labour on the following grounds: (i) Domestic labour will have many employment opportunities (ii) There may be an increase in real wages because of the increase in productivity. (iii) There will be improvements in the working conditions (iv) The productivity of labour may improve because of the adoption of better technology 3. Advantages of Consumers International movements of capital and investment favour the consumers in following ways: (i) By reducing costs, product prices will be lower (ii) Quality of products will be better

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