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From United Nations University

21. TNCs and the Balance of Payments: the exchange gap
22. The performance of TNCs and their affiliates


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,

    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
      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
Lall and Streeten(1977)
Helleiner(1981) and Nayyar(1978)
Dunning(1981) Ch II
Kirkpatrick and Nixon(1983)                 See Bibliography

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

    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
      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

    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)
Lall(1978) Lecraw(1979a) Caves(1982)
Dunning and Pearce(1985)
Stopford and Dunning(1983)
Kim and Fairchild(1987)                  See Bibliography
--RRojas Research Unit/1996