Question

What economic structure is conducive to foreign investments and optimizes profitability for the transnational corporations (TNCs)?

Answer 1

TNCs take into account many variables of the economic structure of a country before deciding to invest in it. Thus, foreign investment will be attracted by economic structures that have political stability, solid institutions such as guaranteed property rights (many countries have nationalized companies and that is not a good sign for firms), trade agreements that encourage growth and opening of trade.

Other favorable conditions are a good internal infrastructure in terms of communications and transportation, as well as education, technological development and a good stock and productivity of productive factors. In addition, favorable exchange rates, tax benefits, and low wage costs ensure low costs, while a large and dynamic domestic market and favorable conditions for exports such as trade or regional integration agreements, ensure the place of the product or service in the market. These conditions optimize profitability for the TNCs.

While volatility usually leads to higher returns, the risk is also large. Therefore, an excessive and continuous volatility in the economic conditions of a country could lead to discourage foreign investment. On the other hand, taxes on foreign capital or restrictions on international trade are also not conducive to attracting foreign capital.