DEVELOPING COUNTRIES
Given the participation of TNCs in the infrastructure industries of a growing number of developing countries, and the significance of infrastructure for sustainable development, the implications of TNC involvement are of considerable importance for host countries. Their involvement raises some crucial questions.
How does TNC involvement affect the size of investment and performance of infrastructure industries and the provision of infrastructure services, including to the more vulnerable segments of society? In what ways are performance gains derived from TNC involvement better or worse than those engendered by domestic enterprises, and are there any negative impacts to consider? What are the wider effects of TNC participation in infrastructure on the host economy and society?
This chapter examines the impact of TNC participation on, and its implications for, host developing countries. Conceptually, the potential for positive and negative impacts arises mainly from the resources and capabilities that TNCs possess - often reflecting their firmspecific advantages (section III.D) - which can be transferred to their host country operations, with potential implications for domestic industries and the economy.
Among the main advantages are access to financial capital, both internally generated and externally mobilized, and knowledge and expertise (often tacit). The latter include production technology, engineering expertise, management and marketing skills and organizational know how. Such knowhow, in the case of infrastructure industries, also implies the capability of running networks and managing complex projects.
Other factors, such as the impact of TNC entry on market structure, competition and efficiency, can also result in performance gains or losses for a host country's domestic industries, with implications for the economy as a whole.
Whether the potential for favourable impacts is realized, and the extent to which TNC participation in infrastructure might have negative consequences for host countries, depends in turn on a number of factors, including firm, industry, and countryspecific conditions.
For example, at the firm level, TNCs strategies with respect to internationalization, in particular their mode of participation in a host country, affect the degree and type of technological or other assets that can be transferred to host country entities. Industry specific factors include the capital intensity, technological complexity, market structure and social significance of different infrastructure industries.
Country specific factors comprise, among others, domestic industrial and human-resource capabilities, and the availability of necessary inputs complementary to those provided by TNCs. And, most importantly, they also include government policies with respect to TNC participation, effectiveness of policy implementation, the quality of institutions and governance in host countries, and regulatory and negotiating capabilities with respect to private participation in general, and TNC participation in particular in infrastructure industries (chapter V).
A major challenge for the analysis is how to isolate TNC specific impacts. Current or past domestic public or private provision of the relevant services is taken into account as a counterfactual, where possible and relevant, in the analysis. Section A of the chapter examines the impact of TNC participation on financial flows for, and investment in, infrastructure industries.
Section B considers first the impact of TNC involvement on the performance of infrastructure industries through the transfer of technology and organizational and managerial expertise, and through its effect on competition and efficiency in service delivery. It then goes on to examine the overall impact on the provision of infrastructure services and its implications for access by the poorer sections of the community. Finally, section C considers some broader development implications of TNC involvement in the infrastructure industries of host countries. Section D concludes.