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IAI Actuarial Core Principles · Business Economics · Globalisation and multinational business

A multinational insurer sets up a large operations centre in an Indian city. Which of the following is a recognised cost, rather than a benefit, that the host economy may experience from such inward investment?

The recognised cost is that profits may be repatriated to the parent abroad, so less of the income generated stays in the host economy. Jobs, technology transfer, tax receipts and export earnings are generally treated as benefits of inward investment.

  1. AProfits repatriated abroad may reduce national income retained domesticallyCorrect
  2. BCreation of skilled local jobs
  3. CTransfer of technology and management practices
  4. DHigher tax receipts from corporate activity
  5. Increased export earnings from services

Explanation

Profit repatriation means part of the output generated leaves the host country, so gross national income grows less than domestic output. The other options are standard benefits of foreign direct investment.

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