Degree Name

Master of Arts (MA)

Semester of Degree Completion

1990

Thesis Director

Lawrence W. Bates

Abstract

In this paper the hypothesis that foreign direct investment by multinational corporations in Brazil was beneficial for Brazil's economic development is being tested. This is done by examining the numerous different consequences of foreign direct investment in Brazil. It is looked at the effects of multinational activities on economic growth and employment, on the balance-of-payments. on distribution of income, and on the composition of gross domestic product. Furthermore, it is focussed on research and development activities of multinationals in Brazil; also the questions whether foreign direct investment contributed to the foreign indebtedness and to inflation are discussed. Finally, it is asked whether denationalization of the Brazilian economy occurred and whether there were political implications.

Before presenting the empirically evident consequences, there are three chapters which serve as a framework for the empirical part. First, terms used in this analysis are defined. Then a brief presentation of the Brazilian economic history follows. The third part consists of a theoretical discussion regarding the impact of foreign direct investment in less developed countries. The empirical analysis in the fourth chapter is followed by a conclusion.

The consequences of foreign direct investment for Brazil are highly complex, but a brief summarization of the most important issues can be made. It becomes apparent that foreign direct investment relatively to total capital formation was rather small. Although industries with foreign dominance experienced above-average rates of growth, the impact on the economy from an overall perspective is rather insignificant. Also employment effects are small due to the relative magnitude of foreign direct investment and because of the use of labor saving technology. Multinationals do not contribute to a more equal distribution of income. The balance-of-payments of Brazil were affected positively and negatively by foreign direct investment. Multinationals contributed strongly to Brazil's export sector. On the other hand, capital goods and production inputs were imported by multinationals; furthermore, technology payments and profit remittances to the head corporation abroad caused foreign exchange outflows. Multinationals avoid research and development activities in Brazil; advanced technology is available to domestic firms only via licensing.

A clear answer to the original hypothesis cannot be made because there are convincing positive and negative arguments. Other less developed countries can benefit from Brazil's experience in that they emphasize positive effects and try to prevent negative aspects of multinational involvement. International organizations are often the best ones to set intelligent regulations in order to maximize the benefits from foreign direct investment for the developing host country.

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