Question

“Developing countries often grant tax concessions to multinational firms in an effort to attract capital flows”. Discuss the effects of this policy

Answer 1

Developing countries grant tax concessions to encourage and attract foreign investments. They do this buy providing tax subsidies , reduction in tariffs charged on imports and exports or by any other way which benefits the multinational firm in investing in developing countries.

EFFECTS OF SUCH POLICY IN DEVELOPING COUNTRIES:

• Investments in developing countries leads increase in employment level.
• Helps adoption of foreign culture among developing countries.
• Exchange of technology.
• Increase in production with new techniques and advance methods of production.
• Rise in growth rate .
• Overall: it leads to increase in standards of living