Multinational Corporations and Local Firms in Emerging Economies by Eric Rugraff & Michael W. Hansen

Part I
Introduction

 Multinational corporations and local fi rms in 
emerging economies
 An introduction
Eric Rugraff and Michael W. Hansen
1.1 Introduction
One of the most heated issues within current development debates relates to the 
role played by multinational corporations (MNCs) in economic development. 
On the one hand, MNCs may help emerging economies1
 in the modernization of 
their economies and industries by transferring technology, know-how and skills, 
by providing access to export markets, by intensifying competition, or by making 
available goods and services that are better and/or cheaper than those offered 
by local producers (De Mello, 1999; UNCTAD, 1999; JBIC Institute, 2002). On 
the other hand, beneficial effects are not given and MNCs may stifle economic 
development by locking in host economies in low value-added activities and by 
crowding out local investments and jobs. Furthermore, anti-competitive practices 
of MNCs may reduce consumer welfare and MNCs may help build consumption 
patterns that are unsuited for host countries (Caves, 1996; Buckley and Ghaury, 
2002; Cypher and Diez, 2004).
As noted by numerous authors, at the end of the day it must be concluded 
that MNCs obviously are both ‘boon’ and ‘bane’ for emerging economies (Caves, 
1996; Nunnenkamp, 2004; Dicken, 2004; Görg and Greenaway, 2004; Endewick, 
2005) and therefore the key issue is when foreign direct investment (FDI) by 
MNCs is beneficial to economic development and when it is not. In this regard, 
the literature has pointed out numerous factors that condition FDI impacts, such 
as government policies (Dunning, 1997), MNC investment motives (Endewick, 
2005), MNC entry strategies (Görg and Greenaway, 2004), absorptive capacity 
of local industry (Narula and Lall, 2004), or the extent to which MNCs link up 
to local firms and industries (Altenburg, 2000; Giroud and Scott-Kennel, 2006).
One of the key issues related to MNCs’ role in economic development is the 
way in which MNCs interact with local firms and industries. This issue is in-

creasingly pivotal as MNCs’ role in organizing global economic activity grows 

Multinational Corporations and Local Firms in Emerging Economies by Eric Rugraff & Michael W. Hansen