Multinational Corporations (MNCs)

Multinational Corporations (MNCs)

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Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

The Impact of MNCs on the Local Economy

  • MNCs have a huge amount of market power as they operate in large sizes

Local Labour, wages, working conditions and job creation

  • There are increased job opportunities and employment for local citizens
  • More worker will be needed to build the building of the firm and make the equipment required, creating new jobs
  • However, the working conditions may be poor to keep costs low and maximise profits

Local Firms

  • Business for smaller and local firms may increase, creating employment for local citizens
  • If more local citizens have jobs, the average incomes may rise and hence consumers can spend more
  • The Multiplier Effect also comes into play when creating job opportunities

The local community and environment

  • Workers can improve their skillset and benefit from training opportunities in new industries
  • Productivity and worker’s skillsets may fall if the MNC only offers basic / repetitive tasks
  • The MNC has a strong corporate social responsibility to ensure that the firm’s actions have a positive impact for society
  • The firm could focus on reducing its carbon footprint or behaving more ethically to
  • If smaller local firms cannot achieve the same economies of scale or make similar profits, they may lose their business to larger MNCs, which would result in a loss of jobs within the local area

Impact of MNCs on the National Economy

Economic Growth

  • Increased employment and spending creates a positive multiplier effect on the national economy, leading to greater economic growth
  • Economic Growth implies that government is also able to generate more tax revenue as people’s income and expenditure levels rise
  • If tax revenue increases, the government may choose to spend more, stimulating economic growth

FDI Flows

  • An expanding business environment will occur if one MNC sets up in a country and another follows due to the great investment opportunities of business potential
  • FDI is likely to increase, leading to economic growth


  • A country can improve its Balance of Payments by exporting more production to other countries

Technology and Skills

  • Firms bringing new industries to the country are able to create opportunities for local citizens to acquire new skills or develop their skillsets
  • In the long term, this can help develop human capital, ensuring productivity and employment

Business Culture

  • MNCs may send their profits over to their home country, which suggests the host country receives little financial benefit
  • If MNCs operate with poor Corporate Social Responsibility, they may not be as focused on developing the skills of the local workforce
  • Unemployment may rise, weakening the economy

Political Influence

  • Regulation ensures MNCs are operating efficiently – heavy fines discourage firms from breaking rules and regulation
  • Some developing nations may view MNCs as a great source of FDI and therefore do not want to control them due to the fear of losing this FDI

Legal Control

  • In a developed economy, the legal system of control is more effective as the government is likely to be less corrupt
  • The government may also set certain standards for labour rights, ensuring there are good working conditions


  • Firms which engage in self-regulation monitor their own behaviour – ethically and legally
  • It may encourage firms to behave unethically but hide their unethical behaviour from the public
  • Wherever there are weak law enforcements, self-regulation can be more effective
  • OECD Guidelines encourage firms to enforce Human Rights and initiatives for good conduct of the environment
  • This can lead to a more efficient policy making process as firms can use their own knowledge and access information to control their behaviour
  • Firms may be at a disadvantage in a competitive environment if are are heavily focused on adhering to global standards and start to disregard the other important business objectives


Quick Fire Quiz – Knowledge Check

1. Evaluate the impact of MNCs on the Local Economy (10 marks)

2. Evaluate the impact of MNCs on the National Economy (10 marks)

3. Explain the importance of political influence and legal in control in regulating an MNC (8 marks)

4. Evaluate the idea of MNCs using self-regulation (8 marks)


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