How MNCs make more profit by …

The main reasons for the MNC's to setup in developing countries are They Provide an inflow of capital into the developing country. E.g. the investment to build the factory is counted as a capital flow on the financial account of the balance of payments. This capital investment helps the economy develop and increase its productive capacity. The Harod Domar model of growth suggests that this level of investment is important for determining the level of economic growth.The inflows of capital help to finance a current account deficit. (foreign investment enables developing countries to buy imports).Multinational corporations provide employment. Although wages seem very low to us, people in developing countries often see these new jobs as preferable to working as a subsistence farmer with even lower income. Multinational firms may help improve infrastructure in the economy. They may improve the skills of their workforce. Foreign investment may stimulate spending in infrastructure such as roads and transport. Multinational firms help to diversify the economy away from relying on primary products and agriculture ? which are often subject to volatile prices and supply.