Integrating host-country political heterogeneity into MNE–state bargaining: insights from international political economy

Abstract

The international business (IB) literature has emphasised the heterogeneity of firm strategies in shaping MNE–state bargaining, but largely ignored the heterogeneity of states. In contrast, the international political economy (IPE) literature provides a more nuanced consideration of state strategies and their economic and political priorities. We seek to address this oversight by making two related contributions. In the context of MNE–state bargaining, we first discuss how differences in political systems and the political and economic objectives of states may affect their negotiating stance with MNEs. We consider the impact of changes in the balance of state objectives by considering how much importance governments assign to improving the welfare of its broader population, relative to how important they are concerned with the “private benefits” that accrue to the political elites. This enables us to add micro-foundations to the characterisation of the state. Second, we apply a Nash bargaining framework to MNE–state negotiations that vividly captures the relative bargaining powers of the MNE and the state, including how “outside options” available to these two actors can influence the shape of actual bargains. We discuss the implications of these two contributions for future research.