Which of the following is an effect of foreign investment by multinationals on a host nation?

• A. It always results in a decrease in the host nation's employment rate.
• B. It guarantees a reduction in the host nation's social costs.
• C. It eliminates all negative externalities associated with production.
• D. It can lead to positive externalities such as technology transfer and skill development.

Answer: (D)

Verified step by step guidance

1. Understand the concept of foreign investment by multinationals: This refers to multinational corporations investing capital in a host nation, often by establishing operations or acquiring assets there.
2. Recognize the potential effects of such investments: These can include changes in employment, technology transfer, skill development, social costs, and externalities.
3. Analyze why foreign investment does not always decrease employment: While multinationals may create jobs, they can also automate or outsource, so employment effects vary and are not guaranteed to decrease.
4. Consider the impact on social costs and externalities: Foreign investment does not guarantee a reduction in social costs or the elimination of negative externalities, as these depend on regulations and corporate practices.
5. Identify positive externalities: Foreign investment can lead to technology transfer and skill development in the host nation, which are beneficial spillover effects beyond direct financial investment.