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Why the study of transnational companies should be part of the economics curriculum

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By Grazia Ietto-Gillies1

[Editor’s note: an earlier version of this piece was published in the WEA Pedagogy Blog]

The business media is awash with news about transnational companies (TNCs) be they in the services or manufacturing or agriculture sector. The news may refer to performance or strategies or plans for real investment (or the lack of them) or takeovers. There is currently also considerable interest in their tax minimization strategies.

Yet economics textbooks and courses are still shying away from this most relevant part of our contemporary economies. This is true of both orthodox/neoclassical approaches and – I regret to say – of alternative ones as a quick analysis of textbooks recommended in the WEA Pedagogy page shows.

It could be argued that the nationality of the investor, employer, or producer does not matter: a firm is a firm and the task of economics is to study it independently of where it invests or its nationality. I have argued (Ietto-Gillies, 2004 and 2012: introduction and Ch. 14) that the existence of nation-states with their different regulatory regimes makes a specific study of the TNC necessary. The regulatory regimes refer to taxation or labour and social security or currencies or environmental laws. The differences in regulatory regimes across different countries generate opportunities for alternative, profitable strategies for firms able to operate across national frontiers. Such operations allow the TNC to take advantage of different fiscal, currency or labour and social security or environmental regulations. Most relevant, transnationality increases the bargaining power of TNCs over labour as we see on an almost daily basis throughout the world. On the fiscal side the advantages that TNCs derive from their tax minimization strategies are partly linked to strategic location of their headquarters in tax-friendly countries and partly to the widely used manipulation of transfer prices (Eden, 2001; OECD, 2010).

Additional advantages of transnationality for companies may also derive from: (a) the spreading of risk across different locations; and (b) the acquisition of knowledge from a variety of cultural and business contexts that the location of production in different countries allows. There are, of course, also costs and risks associated with operating in different locations.

There is more to this issue. Most of us who have embraced alternative and realist approaches to the study and teaching of economics are still, on the whole, stuck with the distinction between micro and macro economics largely taken by us from the orthodox literature. How appropriate is this distinction in a world in which a few firms dominate markets and industries even at the global level? The domination is not just in terms of market shares. On the production side we must take account of the domination that principal firms exercise over smaller contractors many of which operate in other countries. The domination by a few large firms in a particular industry affect labour, consumers and smaller firms linked to the large ones by contractual arrangements. It also affects governments and their policies. Celi et al. (2017: Ch 2) show how the offshoring and outsourcing investment strategies of French, German and Italian automobile manufacturers can largely explain changes in the country’s trade balance. Moreover, the tax-minimization strategies of TNCs have considerable effects on: governments’ revenue; allocation of tax revenue between countries; and – most relevant – an overall transfer of surplus from the public to the private sphere. The micro is almost the meso and greatly affects the macro. Governments and labour force as well as economics teachers take note.

If we WEA economists want to disseminate among our students an alternative and realist approach to the study of economics, then we need to include the study of TNCs in our courses. The task is feasible because there is, indeed, a large literature on theories and effects of TNCs and their activities. The topic is widely researched mostly in Business Schools. Here are some sources of literature.

UNCTAD publishes, among others, the following:

World Investment Report: a yearly thematic analysis with considerable empirical content; full databases available free online.

Transnational Corporations: a quarterly academic, peer reviewed journal which focuses on analysis and policy.

Among the many journals that deal with ‘International Business’ are the following:

Journal of International Business Studies (JIBS)

International Business Review (IBR)

Critical Perspectives on International Business (CPoIB).

Most of the journals tend to be multi- and inter-disciplinary dealing with economics, management, accounting and organizational issues. CPoIB deals also with social and political issues and its content can be of particular interest to WEA members. It has published, among others, papers by a radical accountant, Prof. Prem Sikka of Essex University (including Sikka and Wilmott, 2013).

My (2012) listed below has a comprehensive treatment of the various theories of the TNCs (Part II) and of their effects (Part III) specifically, effects on labour, trade, the balance of payments and on innovation. There are suggestions for further reading at the end of each chapter. The chapters on theories first summarize a specific theory and then critically analyses it in a separate section.

See also ‘The theory of the Transnational Corporation at 50+’ in the WEA journal Economic Thought.

The same issue of the journal has a debate with John Cantwell on the questions raised in the article. The debate is the result of the Open Peer Review process adopted by the journal. It has led to interesting debates on a variety of issues considered in the journal’s articles.



Eden, L. (2001), Taxes, Transfer Pricing, and the Multinational Enterprise, in A.M. Rugman and T.L. Brewer (eds), The Oxford Handbook of International Business, Oxford: Oxford University Press, ch. 21, pp. 591-619.

Celi, G., Ginzburg, A., Guarascio, D. and Simonazzi, A (2017), Northern and Southern Europe in the long European Crisis: a core-periphery perspective, London: Routledge (forthcoming).

Ietto-Gillies, G. (2004), ‘Should the study of transnational corporations be part of the economics syllabus?’, in Fullbrook, E. (ed.) A Guide to What is Wrong with Economics, Ch. 26: 289-98, London: Wimbledon Publishing.

Ietto-Gillies, G. (2012), Transnational Corporations and International Production. Concepts, Theories, Effects, Second Edition, Cheltenham, UK and Northampton, MA, USA: Edward Elgar

Organization for Economic Cooperation and Development (OECD), (2010), Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrators, Paris: OECD

Prem Sikka and Hugh Willmott, “The Tax Avoidance Industry: Accountancy Firms on the Make”, Critical Perspectives on International Business, Vol. 9, No, 4, 2013, pp. 415-443.


  1. I am grateful to Maria Alejandra Madi for useful comments on an earlier draft and to Andrea Ginzburg for information on offshoring in the European automobile industry.

From: pp.4-5 of World Economics Association Newsletter 6(4), August 2016

Download WEA commentaries Volume 6, Issue No. 4, August 2016 ›

2 responses

  • Luc Theriault says:

    Good point! I agree! A focus on Chinese TNCs is also needed as they are in fact a State agent, unlike most TNCs. A lot of interesting stuff also to be said about pricing issues, for instance among TN pharmaceutical firms.

  • Grazia Ietto-Gillies says:

    Dear Luc
    thanks for your comment. Yes, there is a lot of research and teaching potential once we focus at the transnational company as an institution with special powers towards governments, consumers, workers and smaller firms.

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