Using The Evaluation Framework Economics Essay

Using The military rank Framework Economics EssayThe possession of an takeership advantage gives a firm the opportunity to sell goods everyplaceseas further it fails to explain wherefore this is carried break through by victoriouss in the unconnected market or else than tradeing to the foreign market. As a result, in that ready is the need for an rating material.LEARNING OBJECTIVESBy the end of this Unit, you should be able to down the stairsstand and hang in the followingthe instantance of an military rating frameworkthe 4 criteria of the evaluation frameworkassess the contri just nowion of MNEs in a foreign country by using the Evaluation Framework.THE EVALUATION FRAMEWORKThe contrisolelyion of MNEs to the tuition of the innkeeper nation, more particularly underdeveloped countries or LDCs has been the subject of frequently roll everyplace the years. Whilst it is gener every(prenominal)y accepted that MNEs do clog up by fashion of technology transfer, ski lls diffusion and by bringing much needed pay swell, nevertheless criticisms abound as to the negative collision of MNEs in that they atomic number 18 viewed as exploiting the local labour party force, they transfer out appointeed technology, and they strip the LDCs of much needed resources.However, MNEs were and still re important a very important chemical element of out gain, especially for developing countries. This is why it is crucial for a waiter countrys organisation that it should be able to assess FDI in a policy context. The latter(prenominal) process is usually d single by room of an Evaluation Framework. An evaluation framework usually encompasses 4 criteria.3.3 faculty of Resource all(prenominal)ocationEfficiency of resource allocation relates to the extent to which there exist complementarities between of frugalalal interests between the multinationals and the entertain countries. In a similar vein, it highlights the following under what conditions do the trading operations of the TNC in a host country contribute to the world economic welfargon that could non be achieved before?However, the heraldic bearing of MNEs in host countries is often prompted by regime-induced imperfections including protection from imports. Such a smirch in general occurred when countries were adopting an import substitution industrialization strategy.Adopting an import-substitution strategy entai direct a high level of protection, via tariffs, import restriction measures and quotas, which discriminated against exports via explicit and implicit revenue enhancement income income of export activities and an overvalued foreign exchange rate. Also, the political relation used enthronisation license, derivative instrument taxes, tax holidays, exemptions and remissions to influence resource allocation between industries and sectors.The prop unitynts of IS strategy heavily believed that they would be able to meet the domestic consume for manufactu ring products provide craft opportunities for skilled labour ease pressure on the equilibrate of allowance and strengthen the long term procreative capacity of the deliverance by importing the production technology via foreign firms1and by using the babe intentness argument.Under such an era of protectionism2, MNEs were mainly regarded as organism of a market-seeking3 nature. Firms set up plant inwardly foreign nations in order to supply their national markets in the close profitable way possible. The paint location advantages (in Dunnings terminology) which determined these market-seeking investment funds fundss were the cross-border transport and communication be soppy barriers (import restrictions) to trade in in goods and services the size, income per capita and the expected growth of the local market. though cost considerations were deemed important and even decisive in trusted bare(a) markets, an efficiency-seeking motivation was deemed to be of a very secondary nature (Pearce, 1999).However, the overwhelming consensus is that IS was a failure4. IS strategy has turned out to be self-defeating since it has resulted in huge increases in imports of equipment and inputs while transfer pricing conventional a severe drain on foreign exchange. Also, IS granted profuse protection to industries producing in competently non-essential goods for high-income elite. Furthermore, fiscal credit and exchange rate policies, bring together with subsidies on imports of capital goods, made it possible and advantageous to entrepreneurs to rely on high capital intensive equipment piddled abroad and technology unsuited to the compute proportions prevailing in less developed countries.As a result, a forward-looking orthodoxy emerged in the late 60s and primaeval 70s which stressed the role of exports of labour intensive manufactures as an engine of growth. This represented a return to the motionless theory of relative advantage with trade based upon diffe exact grammatical constituent proportions prevailing in various countries which meant that the pendulum turned full swing for victimisation policy in LDCs from import substitution to manufactured exports.Export orientated strategy not exclusively encourages free trade5, but in addition the free movement of capital, labour, enterprises and an reach system of communication. It also entailed more efficient allocation of resources with firms competing planetaryly6based on their relative comparative advantages. These considerations, conjugate with the emergence of trade blocks, were factors motivating changes in the strategic orientation of MNEs.MNEs underwent a complete restructuring of their global and regional supply profiles. This entailed locating7manufacturing operations in only a few countries but exporting for a wider market. individually subsidiary were opened to a fully competitive market situation which permitted the realisation of economies of scale and the attainmen t of optimal efficiency in production (Pearce, 1999). The where to produce clearly gained in prominence during such an era which led to MNEs redistributing their unchanged ownership advantages in order to create an international mesh topology of subsidiaries8which optimised their supply of established range of products. Thus, investments undertaken by MNEs were mainly of an efficiency-seeking nature.However, one should not underestimate the crucial role compete by the presidency during that period. It was not only the choice of trade strategy but also the enchant role of government policy which was at the heart of the development douse. For example, export-oriented growth and appropriate macroeconomic policies9were mutually of economic development in the NICs. The integrating of NICs into world and regional economies was essential for their long-term growth. This required less government intervention and enormouser reliance on hugger-mugger initiatives and market forces. It provided an milieu conducive to foreign investment and domestic entrepreneurship. The Government was expected to actively promote economic growth and use its resources to direct and support the private pains.It was the pursuit of such appropriate policies by these developing countries governments permitted shifts in their embodiment of international specialisation in response to the changing structure of their comparative advantage at different levels of industrial development. As a result, the efficiency of resource allocation improved, the rates of growth accelerated, with arrive ats accruing to all concerned.DISTRIBUTION diffusion relates to the extent to which the gains arising from the MNEs operations are distributed between the partners. The host country would demand a plum share of the benefits created by the investment. However, the identification of a fair statistical distribution is very difficult since it is almost impossible to price justly some contribution such a s technology diffusion and managerial expertise which are intangible in nature.In addition, the issue of distribution is even more contentious especially when profits of the multinationals are delinquent less to the efficiency of resource allocation and more to market distortions or imperfections created and sustained in the first place by the government to pull up these foreign firms. Also, the distribution of such rent is influenced by the relative negotiate strength of the multinationals and the host governments in the light of factors such as tax concessions, tariff protection and labour training.In this light, it whitethorn be argued that there is a direct blood between the negociate strength of the host country and its level of industrialization such that, the lower the industrialization level, the weaker its bargaining power. Finally, host nations are unable to extract their fair share of benefits because imperfections in the market for factors of production in which th e multinationals are strong permits them to earn monopoly rent on these factors.SOVEREIGNTYSovereignty relates to the ways in which the multinational may compromise the economic license of host nations in either the curt or long term. It highlights how the behaviour of multinationals may compromise the effectiveness of certain aspects of the host countries policies.For example, the intra-group transfer of rent, via transfer pricing practices, may step down the autonomy of the host countries in areas such as fiscal policy, monetary policy, trade policy and its attempt to control and organize the structure of industries.SELF trustingnessSelf-reliance relates to the ways in which the operations of the multinational may undermine the viability or independence of local firms or enhance their potential. The self-reliance issue also crops up during the investigations of the impact of multinationals on the industrial structure of the host nations for e.g. the level of concentration and /or modes of operations.It is also concerned with whether the operations of multinationals in the host nations may either enhance or hold backside the availability of particular types of skills for local enterprises since there are claims that multinationals remunerate split up their employees than local enterprises.However, there is no reason as to why the relationship between local enterprises and multinationals should be a competitive one. They may in fact complement each other rather than act as rivals. For e.g. multinationals may sire recourse to indigenous forms for their supply of inputs and this may tend to significant benefits for the indigenous firms by way of improved technology, better calibre control procedures and diffusion of skills.EXERCISES1. MAURITIUS CASE STUDYMauritius is unique in having had a wealthy class of saccharide plantation owners who were actively seeking to substitute their investments in the first years of independence. They have experimented w ith horticultural and industrial exports, as comfortably as with tourer facilities, for many years. It to a faultk the arrival of Hong Kong and Taiwan fabric firms to get industrialization going, however. And South African hotel chains first brought the tourist facilities up to world class standards. Why couldnt they do it alone? The key missing ingredient was the much vaunted keystone of the new thriftiness fellowship. Mauritian investors lacked the depth and breadth of knowledge needed to create viable industry and tourism on their own.The overseas Chinese and South African investors brought in-depth knowledge of how to run an efficient firm. They also had intimate knowledge of customers and their preferences, as well of what the competition was offering. They were able to train the Mauritian workforce, interspersing production lines with faster Chinese workers and more flexible Indian ones to bring up productiveness. Domestic investors, whether the sugar barons or more lo cals of more modest and ethnically diverse origins, unanimously composinged that they were not squeezed out by foreign investment. On the contrary, they worked with, acquire from, and in many cases bought out foreign investors.Ethnicity has been handled delicately in Mauritius, in surprising contrast to analysts predictions at independence. The few dozen Franco-Mauritian sugar barons who controlled the economy at independence in 1970 faced the classic South African nightmare of world washed into the sea. The majority of the electorate comprised landless descendants of cane-cutters brought in from the Indian subcontinent as contract labor. Yet Mauritians found a horse barn accommodation, in twain politics and the economy. The constitution explicitly recognizes ethnic minorities, providing for 10 share of parliamentary seats to go to also rans from ethnic minorities that would otherwise not be represented. The tiny new polity attained in two decades an economic transition fro m monocrop Sugar Island to a balanced economy in which frameworks, tourism and sugar are the pillars.New forays are being made into business services, information technology and other diverse export products. Indo-Mauritians are still minimally represented as entrepreneurs, though they harness the civil service. Sino-Mauritians, hitherto concentrated in smallscale commerce, enhanced their status through association with Hong Kong and Taiwan industrialists whose knowhow and investment initiated the textile sector. Economic tensions are worked out in annual tripartite negotiations between labor, government and employers, most of whom are Franco-Mauritians. Sound institutions have played a critical role in the process. The rule of law has prevailed consistently. The sturdy financial sector, led by Mauritius asseverate Bank since 1828, provides investment capital to both domestic and foreign investors. The British tradition schools graduate fully bilingual, often tri- and quadrilingua l students, whom employers find a great asset in the new global economy.Foreign And local enthronement In MauritiusMauritius was chosen as a case study because it has a reputation as a country in which foreign investment has played a critical and unanticipated role in industrialization, control largely by good policies. The case study bore this out, but added great confusedity to the portrait. Ethnicity was a complicating factor that could have derailed growth, and sound institutions played as important a role as policies in its victor.An Overview of investing Policy and Performance in MauritiusIn the 1960s as independence from Britain approached, James Meade and Burton Benedict published several studies that foresaw a bleak economic and political future for Mauritius.11 Meade proposed strategies to improve the standard of living while taking into consideration projected continuing rapid tribe growth (then over 3% per year). He foresaw pressures of population growth on econom ic resources on this small volcanic isle and suggested several mitigating strategies, including increasing productivity, encouraging expatriation and family planning. Burton Benedict challenged Meades proposed solutions, asserting that even if Meades suggestions on ways to increase productivity were followed, this would not produce results strong enough to counter the population growth problem.To the Malthusian logic in these first analyses, Benedict added concern over the future political stability of Mauritius. He analyzed the 1953 and 1962 censuses and documented the impact of ethnic, religious, caste and linguistic fragmentation on local politics-from the national level to the squabbles over a repair contract for a small town road. He began with the observation that Mauritians rarely identified themselves and others as Mauritians. In 1962 commonwealth from the Indian subcontinent were the majority, but did not comprise a single ethnic group. 50.5 percent of the population was Hindu and 16.2 percent Muslim Chinese comprised 3.4 percent of the population, and the General Population, mainly Creoles and Franco-Mauritians constituted 29.9 percent. Although Africans had been brought to Mauritius in slavery, African languages and ethnic groups had melded into a mixed population speaking the Creole french patois that in stages became a lingua franca of the Island. The Indo-Mauritian population was 63 percent Hindu Sanatan and 19 percent Muslim Hanafi. thither were principally endogamous minority sects of both major religions (the largest of which were Arya Samaj and Ahmadiyya), as well as Indian Christians. Castes had consolidated into a bipolar mode.They had no collective organization, but were generally endogamous. Chinese were most evenly split between Christians and Buddhists. Indo-Mauritians were further split by language, which sometimes had ethnic connotations. Hindi was the mother tongue of 36 percent of the broad(a) population and Urdu of 13.5 pe rcent. Smaller Tamil and Telugu groups rarely intermarried with other Hindus. The General population of metisse, Franco-Mauritians and others was 96 percent Roman Catholic. The Franco-Mauritian families, are mostly descendants of French nobility who fled there during the French Revolution. The British gained control of the island during the Napoleonic wars andgoverned it until 1968, but the French families dominated the domestic society and economy.For the dependency theorists of the 60s, Mauritius was an archetypical monocrop colonial economy. It depended on sugar for 99 percent of exports and one third of GDP. chide fields occupied 90 percent of arable land. Of that, 55 percent was owned by 25 Franco-Mauritian families, often dubbed sugar barons. The remaining 45 percent of sugar e tells were owned by 84,000 small farmers, preponderantly of Indian origin. Almost no food was produced on the island. The majority who would dominate numerically in a democratic Mauritius was a land- poor population of former bound(p) laborers on sugar plantations from the Indian subcontinent. Until recently they had been considered transients, not counted as members of the population.Benedicts complex analysis of the ethnic situation did little to lift the prevailing pessimism near Mauritius future. The colonial government commissioned Meade to head an appointed commission to produce an economic strategy. The Meade Report was to strongly influence the government in creating its sign import substitution industrialization policy. The key recommendations in the Meade Report include tariff protection for certain local industries, a decrease of merged tax from 40 to 30 percent, tax holidays for five of the first octonary years of a fraternity, priority of capital expenditure for projects leading to productive employment and the abolition of tariffs on importation of machine tools and equipment. These policies already pore on investment advance, a policy which successive Mau ritian governments have consistently favored. Even as early as 1960, investment in Mauritius reached 30% of GDP, a figure only recently achieved by the most successful economies in East Asia and largely unheard of in the developing world.At this time, however, neither the new government of Mauritius, nor others in the developing world, had recognise the connection between investment policy and the larger political and economic context. A number of trends of the first government, which was dominated by the Mauritian stab Party from independence in 1968 until 1982, limited the effectiveness of investment promotion incentives. One concern of foreign investors was political stability. There had been some common violence just before independence, and the new Hindu dominated government maintained a fragile truce with minorities, including Muslim, Chinese and Franco-Mauritians. Other concerns center around macroeconomic policies. Currency controls and protective tariffs designed to nur ture import substitution industries for the tiny national market, raised energy and transaction costs and times for potential exporters. The involvement of government in labor/ solicitude negotiations and the creation of state corporations in key sectors led investors to take a wait and see attitude toward government. And the fledgling transport and telecommunications infrastructure was scarce adequate.The idea of creating an export promotion zone (EPZ) was added to the policy mix in 1970, only two years after independence. It was inspired by the success of Taiwan. Within a year the EPZ legislation was passed. In a stab of brilliance, industrial leaders and policy-makers realized that Mauritius, being a small island with right away controlled access, could declare the whole island an EPZ-it did not need to have a fenced area. This allowed investors to skeletal frame in dispersed locations, to facilitate transport for their workers and/or their products. Only a few foreign inves tors took advantage of the EPZ law in the 1970s, however.Mauritius isolated location in the Indian Ocean, its currency controls and uncertain political situation reportedly influenced the first investors to limit their commitments. What became the flagship textile firm, for example, was set up initially to do only the manufacturing marketing and management were based in Japan and Hong Kong respectively.By the end of the 1970s Mauritius was experiencing many of the same problems that other African countries had with state corporations, protective tariffs, and currency controls. With no petroleum resources, it had been hit hard by OPECs escalation of oil prices and the global economic distortions that ensued. Government was running unsustainable annual deficits, the balance of trade was negative, industry was stagnant, and foreign exchange rationing slowed down all transactions. A devastating cyclone catalyzed a change in direction and in government. An alliance of former opposition parties, the Mauritian Militant Movement (MMM) and Mauritian Socialist Party (PSM), won the 1982 elections, changing the dominant party position for the first time since electoral politics was introduced in 1947.The new government scrapped the mixed strategy of the 1970s, liberalized the currency, retreated from subsidizing state corporations, and put its full efforts into willing structural adjustment and promoting export-led growth. In retrospect, a recent government report sees that decision as an inevitable logical consequence of Mauritius geographic situation. The report, Mauritius at Crossroads (1995) explains that as a small island, physically limited by lack of arable land and relying solely on sugar for foreign exchange, Mauritius was condemned to turn to an aggressive export strategy. However, it was not until the early 80s that foreign investment actually took off. And, it appears, partly as a consequence so too did domestic investment take off.Today, according to Maurit ius at Crossroads, every Mauritian is taught the concept Export or Die. This philosophy has led to the development of a sound business environment which is friendly to investors, both local and foreign, and which offers an piquant investment incentives package to compensate for the lack of resources and the no-longer inexpensive labor force. The aged generation of industrial and government leaders also stresses that Mauritians have learned to make a virtue of their ethnic diversity. The switch to an export-led strategy came at a time of crisis. The ill-paid labor force was still predominantly of Indian origin, as was the government, whereas the industrial sector was led by Franco-Mauritians, Hong Kong/Taiwan investors and a few Sino-Mauritians.Several interviewees described the moment as if they had looked at one another, then at the surrounding hundreds of miles of ocean, and decided that they would sink or submerge together. For the export strategy, Mauritius needed to reach out to Hong Kong and Taiwan textile magnates, who had the capital and skills to organize a competitive industry. Franco-Mauritian local capital and know-how, and contacts were needed to open up European markets. A cooperative, trainable labor force was needed to coax investors. And government needed to be fully committed to its investor-friendly strategy. Mauritius had hard-working bilingual predominantly male labor force. They were skilled in farming, not industrial work. closely analysts doubted that Hindu or Muslim women would ever come out of the station and into the workplace. Within six or seven years, Mauritius had full employment, and industrial workers were mainly women.Policies were the main, but not the only factor in investment decisions. Promoting investment has been on the top of the governments industrial agenda throughout the different development phases, but the understanding of what works for investors, for government and for the society as a whole, has evolved con tinuously. The first clearly defined policy came in 1961, as the colonial government began to prepare for an independent Mauritius, with the Industrial maturation Tax relief pitcher Act. The Export Processing Zone took effect in 1971, as one of the first acts of the newly independent government. Support services for exporters were given a fillip in 1981 with the Export Service Zones Act.In 1985, the Mauritius Export Development and investment funds Authority (MEDIA) was established as the executive arm of the Ministry of Industry. Its main responsibilities are to attract investment, promote exports and manage industrial estates. Investors clearly weighed these incentives against the inconveniences created by location, lack of local food and fuel supplies and small market size. The only major policy disincentive for foreign investors is that they are not allowed to own land. Government has compensated by providing fully equipped industrial sites for lease. Hotel investors generally partner with a local landowner. In the 1980s Mauritius offered inexpensive labor, but within a decade the development of the textile and hotel sectors had brought wages to a middle level, by world standards. From the late 1980s through early 1990s, Mauritius experienced full employment. Rising wages have gradually priced the textile industry out of its mass-production T-shirt lines, and forced both government and industry to rethink development strategies.The Industrial Expansion Act of 1993 was a uncomplete response to this dilemma. Through it Mauritius confirmed its commitment to permanent zero tax rates for exporters, and added a bundle of new-targeted incentive programs, providing for high technology investors, seaward financial services and freeport services. The full range of incentive programs Mauritius which were offered is shown in turn off 6.1. To increase confidence in the industrial sector in general, corporate tax for manufacturers who do not qualify for the EPZ zer orate was cut from 35 to 15 percent.Table 3.1 Manufacturing Fiscal IncentivesINCENTIVE SCHEMESQUALIFYING ACTIVITIES INCENTIVESExport green light(EPZ)All manufactured goods for exportsProduce of deep sea fishing (Including fresh or frozen fish)Printing and publishing as well as associated operationsIT activitiesAgro IndustriesNo custom business, or sales tax on barren materials and equipmentNo corporate taxNo tax on dividendsNo capital gains taxFree repatriation of profits, dividends and capital60% remission of customs duties on buses of 15-25 seats used for the transport of workers.Exemption from payment of half(a) the regulation registration fee on land and buildings by newenterprises.Relief on personal income tax for 2 expatriate caterPioneer Status EnterpriseActivities involving technology and skills above average active in Mauritius and likely toenhance industrial and technological development.Applicant companies may come under one of three broad categories(a) new techn ology,(b) support industries and(c) service industries.No customs duty, or sales tax on scheduled equipment or materials.15% corporate taxNo tax on dividendsFree repatriation of profits, dividends and capitalStrategic Local EnterpriseLocal industry manufacturing for the local market and engaged in an activity likely to promoteand enhance the economic, industrial and technological development of Mauritius.15% corporate taxNo tax on dividendsModernization and Expansion EnterpriseTwo broad categoriesInvestment in productive machinery and equipment, such as automation equipment andprocesses and computer applications to industrial design, manufacture and maintenanceCAD/CAM)Investment in anti-pollution and environment protection technology to be made within 2 yearsof date of issue of certificate.No customs duty on production equipmentIncome tax credit of 10% (spread over 3 years) of investment in new plant and machinery,provided at least Rs 10 million are spent and this occurs within two years of date of issue ofcertificate. (This is in addition to existing capital allowances which amount to one hundred twenty-five%of capitalexpenditures.)Enterprises incurring expenditure on anti-pollution machinery or plant benefit from a furtherincentive, i.e. an initial allowance of 80% instead of the normal 50%Industrial Building EnterpriseConstruction for letting purposes of industrial buildings or levels thereof, provided floor space isat least 1000 unanimous meters. Special conditionsThe applicant can only be a company intending to erect an industrial building to be let to the holder of a certificate (other than an industrial building enterprise certificate) issued under this Act or to an enterprise engaged in the manufacture or processing of goods or materials except themilling of sugar.15% corporate taxNo tax on dividendsRegistration dues for land purchase 50% exemptionThere is also a non-fiscal incentive, namely the disapplication of the Landlord and Tenant Act,i.e. rent control credit Destination Mauritius, Mauritius Export Development and Investment Authority (MEDIA).Table 3.2 operate Fiscal IncentivesINCENTIVE SCHEME QUALIFYING ACTIVITIES INCENTIVESOffshore Business channelise of business with non-residents and in currencies other than the Mauritian Rupee. Activities include offshore banking, offshore insurance, offshore funds management, international financial services, operational Headquarters, international consultancy services, merchant vessels and ship management, aircraft financing and leasing, international licensing and franchising, international data processing and other information technology services, offshore pension funds, international trading and assets management, international employment se