MULTINATIONALS, LINKAGES, AND ECONOMIC-DEVELOPMENT

This paper explores how multinationals affect underdeveloped regions t hrough the generation of linkages. it is shown that the linkage effect of multinationals on the host country is more likely to be favorable when the good that multinationals produce uses intermediate goads inte nsively, when there are large costs of communication between the headq uarters and the production plant, and when the home and host countries are not too different in terms of the variety of inter mediate goods produced If these conditions are reversed, then multinationals could e vert hurt the developing economy, formalizing the idea that multinatio nals may create enclave economies within developing countries.