Do MNCs Matter for National Development? Contrasting East Asia and Latin America

Abstract

Multinational corporations (MNCs) play a pivotal role in the cross-national flow of goods, capital, and technology (Gilpin, 1987, 1975; Vernon, 1977, 1971, 1966). As such, they are a key part of the evolving international political economy characterized by rising globalization of production processes, interpenetration of national product markets, interlocking holding of financial assets, and diffusion of manufacturing technology. Foreign direct investment (FDI) by these firms has recently gained further importance as many developing countries, beset by the debt crisis of the 1980s, have begun to seek this investment as an alternative source of external finance. The turn toward market economics by the former socialist countries and their reinsertion into the capitalist world economy have also increased the salience of FDI. This salience has moreover been accentuated by the declining amount of foreign assistance provided by the United States and Russia to many developing countries. Finally, because intrafirm trade among the majority-owned subsidiaries of MNCs has constituted a major source of surplus or deficit in international trade, FDI has become a new focus for analyzing the industrial competitiveness and commercial rivalry among developed countries such as the United States and Japan (Encarnation, 1992).

We thank Thomas Biersteker, Richard Doner, and Sam Fitch for their helpful comments on an earlier version of this chapter that was presented at the annual meeting of the International Studies Association, Acapulco, Mexico, 22–27 March 1993.