Business Studies – 6.2.2 Multinational companies (MNCs) | e-Consult

Repatriation of profits refers to the process where an MNC sends a portion of its earnings back to its home country. This can have several negative consequences for the host country's economy.

Firstly, it leads to a loss of capital. The money that would have been reinvested in the host country's economy – for example, in new factories, infrastructure, or research and development – is instead sent abroad. This reduces the amount of investment available for economic growth.

Secondly, it can limit economic development. A country heavily reliant on foreign investment may find its development hampered if a significant portion of the profits generated within its borders are not reinvested locally. This can hinder job creation, technological advancement, and overall economic progress.

Thirdly, it can reduce government revenue. Profits repatriated by MNCs are often subject to taxes in the host country. However, if a large proportion of profits are sent back home, the host government receives less tax revenue, potentially impacting its ability to fund public services like healthcare, education, and infrastructure.

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Therefore, the repatriation of profits can significantly impede a host country's economic progress and limit its ability to benefit from the presence of MNCs.