ABSTRACT
The implications for the theory of economic policy will become clearer only after considerably more work has been done on the range, scope and limits of transfer pricing. Much of the research on the multinational enterprise(MNE) has been in the neo-classical tradition. Sir Donald MacDougall analysed foreign investment as a flow of additional capital into a country, while everything else is held constant. The static effects of marginal investments can be analysed according to marginal productivity theory. Efficiency and profit criteria will then have to be supplemented by criteria of social justice, regional development, employment creation, environmental protection. The relation between the MNE and these social objectives will, to a large extent, depend upon the ability and willingness of the host government to pursue the 'right' policies. In fact, governments yield to the pressures of foreign companies documented by transfer prices.
