Wednesday, December 9, 2009

Why do 3rd world nations need foreign companies to extract their own oil?

I have scoured the internet and cannot find an answer.Why do 3rd world nations need foreign companies to extract their own oil?
Firstly, each nation has a set of resources that they have access to, called factors of production(land, labour, capital and enterprise), The amount and type of resources that a nation has, called factor endowments, differ due to geography (ie minerals), history (more or less developed) and many other factors. For example, some nations have large amounts of labour (large populations, esp in developing nations) and large amounts of land (natural resources, like oil) however they do not have the required capital (man made resources, like machinery and money) to extract it from the land or the enterprise to organise this process (due to limited education or incentives to take the risk ie corruption).


Many developing nations invite the MNC into the nation to bring in the foreign capital required to get these projects occurring, providing jobs and tax that will improve the nation in the long term. This does not always occur however, think corruption, use of government budget on military rather than health and other social issues like Aids and political unrest in the nation. Also, some MNC simply come in and add little back to the community and use the resources until depleted and pay low wages.





I hope this helps.Why do 3rd world nations need foreign companies to extract their own oil?
Because they are third world which means the do not have any significant about of industry, technically trained people, or a work force skilled at working with complex machinery. After a few decades their work force becomes skilled and they often take over the production, but by then they are no longer third world.

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