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The Monopoly Power of Multinational Enterprises in the Service Sector of a Developing Country

Author

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  • Abera Gelan

    (University of Wisconsin-Milwaukee,USA)

Abstract

This paper draws attention to the implications of the foreign direct investment (FDI) in the presence of monopoly power of multinational enterprises (MNEs) in the industries that are natural monopolies of a developing host country. We also take into account the MNEs' behavior that relies on the local capital market in order to finance their FDI. In a simple general model, we show that these firms use their advanced technology to lure local resources to the industries under their control away from the industries under the control of indigenous firms. As a result, the MNEs are likely to prosper from their activities at the expense of indigenous firms. This reduces employment and leads to a fall in real national income of the host country. It is further shown that a long-run expansion of the indigenous firms may be stalled by the monopoly power of MNEs which impedes the allocative efficiency of relative price and hinders local resources from adjusting to factor rewards.

Suggested Citation

  • Abera Gelan, 2009. "The Monopoly Power of Multinational Enterprises in the Service Sector of a Developing Country," Journal of Developing Areas, Tennessee State University, College of Business, vol. 42(2), pages 1-29, January-M.
    • Handle: RePEc:jda:journl:vol.42:year:2009:issue2:pp:1-29
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    Cited by:

    1. Eduardo Polloni‐Silva & Herick Fernando Moralles & Daisy Aparecida do Nascimento Rebelatto & Dominik Hartmann, 2021. "Are foreign companies a blessing or a curse for local development in Brazil? It depends on the home country and host region's institutions," Growth and Change, Wiley Blackwell, vol. 52(2), pages 933-962, June.

    More about this item

    Keywords

    Foreign Direct Investment; Knowledge-Based Assets; Monopoly Power; Multinational Enterprises; Natural Monopolies; Nontraded Good;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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