From United Nations University
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21. TNCs and the Balance of Payments: the exchange gap
22. The performance of TNCs and their affiliates
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21. TNCs and the Balance of Payments: the exchange gap
21.1 introduction
why, and under what conditions, should the impact of TNCs on
the balance of payments be of concern to host and home countries?
21.2 viewed form the host country's perspective
a) identifying the external transactions associated with FDI
i) capital account:
- initial inflow of foreign equity or loans, net of
imports of real assets (+)
- subsequent capital inflows (+)
- reinvested profits (+)
ii) Current account:
- imports of intermediate products and goods
for resale (-)
- exports of affiliates (+)
- profits and interest earned (-) royalties and
management fees (-)
iii) transactions of other forms associated with TNC
affiliates (even a good which is non-tradeable may
embody inputs which are tradeable)
b) attributing balance of payments transactions to TNCs
i) alternative models of estimating effects
ii) what would happen in absence of TNCs (the counter
factual situation): making direct comparisons with
balance of payments transaction of non TNCs
iii) indirect effects of FDI on other firms
c) the relevance of host country macro-economic policies in
evaluating contribution of TNCs to balance of payments
objectives of host countries
21.3 variables affecting impact of TNCs on balance of payments
a) according to type of TNC affiliate activity, e.g. resource
based, import substituting manufacturing, export processing,
service, etc.
b) according to TNC specific characteristics (e.g. age, size,
strategy, control exercised on sourcing and export markets,
etc.)
c) according to policies pursued by host governments;
cf. Singapore with India, Mexico with Thailand, etc.
21.4 Do TNC affiliates export/import more than indigeneous firms in
developing countries?
The evidence is mixed, but, on balance, TNCs affiliates
export about the same or marginally more than their domestic
competitors; but they also import more. Clearly there are country,
industry and firm specific characteristics which are as, if not
more, important than the nationality of ownership in influencing
balance of payments effects
21.5 intra firm trade flows
a) the components of intra-firm trade e.g. foodstuffs and raw
materials, components and parts, finished goods, services,
second hand equipment, machinery etc. Casson and Pearce(1986)
b) the significance intra-firm trade in TNC transactions
c) the propensity of TNCs to engage in intra firm trade
i) type of TNC activity; composition of final output
ii) extent of 'roundaboutness' of production and degree
of horizontal and vertical integration
iii) propensity of TNCs to engage in trade
iv) propensity of TNCs to internalise intermediate product
markets
v) country-specific variables
d) the likely effects of intra-firm trade on the host countries
balance of payments
21.6 a home country perspective
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Lall and Streeten(1977)
Helleiner(1981) and Nayyar(1978)
Dunning(1981) Ch II
UNCTC(1985b)
Kirkpatrick and Nixon(1983) See Bibliography
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22. The performance of TNCs and their affiliates
22.1 introduction
a) the choice of which intermediate or final goods and services
to produce (allocative efficiency)
b) efficiency in use of resources (technical and scale
efficiency)
c) private and social criteria for assessing 'performance'
22.2 the performance of TNCs as a whole
a) growth and profitability of TNCs vs other firms
b) variations of performance among TNCs
c) the relevance of industry and countr-specific variables
d) data problems
i) lack of standardized accounting procedures
ii) judge performance in different ways cf. Japanese with
US firms
iii) firms differ in the calculation of costs and revenues;
and use of 'discretionary' profits
iv) profits may be affected by intra-firm transfer pricing
practices
v) difficulties associated with foreign exchange conversion
vi) difficulties associated with price distortions of both
inputs and outputs
22.3 the technical efficiency of foreign affiliates
a) measurement techniques
i) the structure-conduct-performance (SCP) paradigm
ii) optimum use of factor resources
iii) productivity, profitability and market share indices;
the 'pyramid' of performance ratios
iv) other performance indices (see also 26)
b) empirical evidence of performance of TNC affiliates;
problems associated with deriving a meaningful measure of
efficiency
c) private and social efficiency: what governments may do to
increase the social efficiency of TNC affiliates
22.4 the choice of sectors in which TNCs invest
a) what types of sectors do TNC invest in cf indigeneous firms;
e.g. are they more (or less) growth, (net) export,
productivity, R and D intensive etc. oriented
b) how do TNCs which promote global strategies allocate
resources among affiliates
c) individual country or industry case studies (see especially
Dunning 1985)
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Lall(1978) Lecraw(1979a) Caves(1982)
Dunning and Pearce(1985)
Chudnovsky(1974)
Stopford and Dunning(1983)
UNCTC(1982)
Kim and Fairchild(1987) See Bibliography
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--RRojas Research Unit/1996
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