Document Type

Project

Publication Date

6-6-2017

Abstract

It is clear that multinational corporations (MNCs) have significant impact in the growth trajectory of developing countries. The nature of this relationship, however, is heavily debated. What is the downstream impact from MNCs on the lives of workers in developing countries? Are countries perversely incentivized to repress and exploit their unskilled labor forces to attract investment? Do multinationals promote better working conditions and raise standards of living for workers? In this essay, I argue that multinationals have the potential to bring massive benefits to the working class in developing countries. If the government of the host country develops strong linkage institutions, connecting MNCs to a large portion of the labor force and promoting information sharing, MNCs can bring increases in wage levels, decreases in inequality, and increased standards of living overall. My study combines quantitative analysis and case study research to explore the effects of MNCs on six developing Latin American economies: Colombia, Costa Rica, Guatemala, Honduras, Mexico, and Venezuela.

To preview my main findings, there are strong correlations in all countries between foreign direct investment (FDI) net inflows (a proxy variable for MNC involvement) and adjusted net national incomes. I also show that overall levels of FDI coming into a developing economy evidence a more significant relationship with income levels than do their relative share of that economy’s market, indicating that industry domination is not as important as the total amount of incoming FDI. The data also shows that increased exposure to foreign capital appears to lead to absolute wealth gains across the economy. In other words, all income groups are made absolutely better off by increased MNC involvement. However, there is strong evidence to suggest that the gains associated with FDI are not evenly distributed across income brackets, that the benefits to the wealthy are disproportionate to those to the poor. Finally, the data shows a good deal of support for the theory that different periods of FDI development affect and enfranchise different groups in different ways. When MNCs initially enter a country, in the early stages of development, we see strong associations between increased levels of FDI and increased Human Development Index (HDI) scores. As time goes on, and peripheral economies adapt and shift their development strategies, the relationship becomes weaker and appears to plateau. The central goal of this essay is to explore the extent to which predictions from the established literature hold true in select countries in Latin America, with an eye toward what their experiences can say about the impact of MNC FDI more broadly.

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