(II) Negative effects of FDIs on LDCs.
One of the biggest possible evil that is present in almost every emerging economy is corruption. When an MNC enters a less developed country the Government in that country has set regulatory environment for businesses forming an ambiguous business-government relationship, may further propel the corruption. One such popular example is Daewoo, according to Luo(1997) whereby the founder and Chairman, Kim Woo-Chong, became a fugitive for alleged bribery shortly after the company's failure.(5).
The problem is that once such MNCs enter the country they find corruption money as a cost to the company they only worsen the problem.
When we look at Banque Nationale de Paris or BNP having closed its retail banking in India in November 2002 showing door to 140 retail and over 40 investment bank employees. BNP having 7 branches throughout India leaving 15,000 retail clients high and dry. It proves that even one of the "big" banks can close in a country like India which has very good prospects for investments.
According to Joseph LaPalombara (Report No.767) "The presence of a MNC is said to distort national development by creating structural or sectoral imbalances in the economy. One form of distortion is, making the local economy overly dependent on external forces over which local officials and organisations have little control. In case of Brazil, allegations about distortion often turn on the "denationalization" of the local economy, meaning, the gradual but progressive squeezing and contraction of the domestic private sector." (7).
It can be realised that a country should not become dependent on MNCs which could otherwise lead to a "difficult position" for the government of the host country.
Another aspect is that of distribution losses of the host country where the MNE exercises monopoly power. Parry (1979) explains that when a MNE has the ability to extract monopoly profits from the market, which by exercising their monopoly power within the host market and transfer pricing outside the host market i.
