THE ECONOMICS AND POLITICS OF THE MULTINATIONAL FIRM
Office: 732 Ostrom Ave
In recent years it has often been suggested that the various nations of the world have been drawn increasingly together by the force of an expanding world economy. One of the agents of this expansion is the multinational enterprise--the subject of this course. The primary object of this course is to develop a body of theoretical tools and empirical information that will permit an evaluation of the role of the multinational enterprise in the political-economic development of both advanced industrial countries and developing countries, as well as that of the international system which binds them all together. As this description implies, we will develop a perspective on the MNE which is intended to complement the perspectives of international finance, marketing and management.
Readings for this course will be drawn from the following:
Richard Caves (1983) Multinational Enterprise and Economic Analysis, Cambridge: Cambridge University Press. (Caves).
Additional required material will be available at the reserve reading desk in the library. Optional materials are marked with an asterisk (*). The following supplementary texts are referred to throughout:
C.Fred Bergsten, Thomas Horst and Theodore Moran (1978) American Multinationals and American Interests. Washington D.C.: Brookings. [BHM]
John Dunning (1981) International Production and the Multinational Enterprise, London: Allen and Unwin. [Dunning]
Neil Hood and Stephen Young (1979) The Economics of the Multinational Enterprise, London: Longman. [Hood & Young]
Peter Buckley and Mark Casson (1987). The Economic Theory of Multinational Enterprise. New York: St. Martin's (B&C)
Mark Casson (1987) The Firm and the Market, Cambridge: MIT [Casson]
F.M. Scherer (1980) Industrial Market Structure and Economic Performance, Boston: Houghton Mifflin. [Scherer]
Your performance this semester will be evaluated on the basis of two examinations (mid-term and final) and a research project. Each of these is worth 100 points. I require a research proposal describing the paper no later than the day of the mid-term, and the paper itself is due no later than the day of the last regular lecture. A 10 point penalty will be levied against the final grade of the paper for late proposals and a 15 point penalty for late papers.
I. General Orientation: Theory of the Multinational Firm
Wk1: Course Overview and Review of Core Microeconomic Concepts
This week we introduce the course and provide a brief review of the basic partial and general equilibrium relations that will be applied throughout the semester.
*Buckley and Casson, Cptr. 1
*Neil Hood and Stephen Young, Cptr. 1.
*John Dunning (1983). "Changes in the Level and Structure of International Production: The Last 100 Years". in M. Casson, ed. The Growth of International Business. London: Allen and Unwin (hereafter "Casson, ed."), pp. 84-139.
*F.M. Scherer (1980), Cptrs 1 & 2.
Wk. 2: Neo-Classical Models of Capital Movement
One basic approach to the analysis of the causes and effects of foreign direct investment is the neo-classical/capital arbitrage approach. This is a useful starting point not only because it shows the interdependence of trade (movement of goods) and investment (movement of factors), but also because it illustrates the value of the simple general equilibrium model and sets up the more modern firm-theoretic approach. It should be recalled that even though the firm- theoretic approach will turn out to be a better model of the causes of FDI, the simple GE model will continue to be the workhorse for the evaluation of its effects.
-Caves, Chapter 2 (except section 2.2; Chapter 6 optional)
-Mundell, Robert (1957) "International Trade and Factor Mobility", American Economic Review, V.47-#3, pp. 321-335; Caves and Johnson (1968) A.E.A. Readings in International Economics, Chapter 7.
-Nadel, Ernest (1971). "International Trade and Capital Mobility". American Economic Review, V.61-#3, pp. 368-379.
-Purvis, Douglas (1972). "Technology, Trade and Factor Mobility". Economic Journal; V.82-#?, pp. 991-999.
-Melvin, James (1969). "Increasing Returns to Scale as a Determinant of Trade". Canadian Journal of Economics; V.2-#3, pp. 389-402.
*Mark Casson (1982). "The Theory of Foreign Direct Investment". in B&C, pp. 113-143.
*Markusen, James (1983). "Factor Movements and Commodity Trade as Complements". Journal of International Economics; V.14-#?, pp. 341-356.
*Grubel, Herbert (1968). "Internationally Diversified Portfolios: Welfare Gains and Capital Flows". American Economic Review. V.58-#?, pp. 1299-1314.
*Stevens, G.V.G. (1969). "Fixed Investment Expenditures of Foreign Manufacturing Affiliates of U.S. Firms: Theoretical Models and Empirical Evidence". Yale Economic Essays; V.9-#?, pp. 137-198.
*Fritz Machlup, Walter Salant and Lorie Tarshis (1972) International Mobility and Movement of Capital; New York: Columbia University Press/ NBER.
*David Hartman (1979) "Foreign Investment and Finance With Risk", Quarterly Journal of Economics, V.93-#2, pp.213-232.
*Ruffin, Roy (1984) "International Factor Movements", in R. Jones and P. Kenen, eds. Handbook of International Economics, V.1, pp. 237-288.
Wk.3: Market Structure and FDI
The neoclassical model of factor mobility dominated research on FDI until the early 1960's when an alternative model, based on the theory of industrial organization instead of trade theory was proposed by Stephen Hymer, and developed in greater detail by Charles Kindleberger and Richard Caves. This week we consider the Hymer-Kindleberger-Caves (HKC) model as an alternative to the neoclassical model.
-Caves, Chapter 4; BHM Chapter 7 (pp. 213-248 only).
-Caves, Richard (1971). "International Corporations: The Industrial Economics of Foreign Investment". Economica; V.38-#?, pp. 1-27.
-Aliber, Robert (1970), "A Theory of Direct Foreign Investment", Kindleberger, The International Corporation, Cambridge: MIT Press, pp. 17-34.
-Vernon, Raymond (1966), "International Investment and International Trade in the Product Cycle", Quarterly Journal of Economics, V.80-#2, pp. 190-207.
*Hymer, Stephen (1960), The International Operations of National Firms: A Study Of Direct Foreign Investment Cambridge: MIT Press.
*Kindleberger, Charles (1969). American Business Abroad. New Haven: Yale University Press. (especially, pp. 1-36).
*Irving Kravis and Robert Lipsey (1982) "The Location of Overseas Production and Production for Export by U.S. Multinational Firms"; Journal of International Economics, V.12-#2, pp. 201-223.
*Irving Kravis and Robert Lipsey (1985). "The Competitive Position of US Manufacturing Firms". Banca Nazionale del Lavoro Quarterly Review; #153, pp. 127-164.
*Irving Kravis and Robert Lipsey (1987). "The Competitiveness and Comparative Advantage of US Multinationals, 1957-1984". Banca Nazionale del Lavoro Quarterly Review; #161, pp. 147-167.
*Robert Lipsey (1988). "Changing Patterns of International Investment in and by the US". in M. Feldstein, ed. The United States in the World Economy. Chicago: University of Chicago Press/NBER, pp. 475-545.
*Norman, George and John Dunning (1984) "Intra-Industry Foreign Direct Investment: Its Rationale and Trade Effects"; Weltwirtschaftliches Archiv, V.120-#?, pp. 522-539.
*Anita Benvignati (1987). "Domestic Profit Advantages of Multinational Firms." Journal of Business. V.60-#3, pp.449-461.
*Vernon, Raymond (1979), "The Product Cycle Hypothesis in a New International Environment", Oxford Bulletin of Economics, V.41-#?, pp. 255-267.
*BHM chapter pp. 214-248.
*Hood and Young, Cptr. 2.
*Scherer, chapters 3 & 4.
Wk.4: Internalization and the MNE as Firm
The modern theory of the multinational enterprise (MNE) is primarily rooted in the theory of the firm. This week we examine this body of theory and its application to the analysis of the FDI decision.
-Caves chapter 1 (Chapter 3 optional).
-Buckley and Casson, Chapters 2, and 8.
-David Teece (1981) "The Multinational Enterprise: Market Failure and Market Power Considerations"; Sloan Management Review, V.22-#3, pp. 3-17.
-Peter Buckley (1983). "New Forms of International Industrial Cooperation". in Buckley and Casson, pp. 39-59.
-Dunning, John (1977), "Trade, Location of Activity and the MNE", Ohlin et al., The International Allocation of Economic Activity, New York: Holmes and Meier, pp. 395-431; also in Dunning, Cptr. 2.
*Dunning, Cptrs. 3-5.
*A.L. Calvet (1981) "A Synthesis of Foreign Direct Investment Theories and Theories of the Multinational Firm"; Journal of International Business Studies, V.12-#?, pp. 43-59.
*Peter Buckley (1983). "New Theories of International Business: Some Unresolved Issues". in M. Casson ed. pp. 34-50.
*David Teece (1983). "Technological and Organizational Factors in the Theory of the MNE". in Casson ed. pp. 51-62.
*David Teece (1986). "Transactions Cost Economics and the MNE: An Assessment". Journal of Economic Behavior and Organization; V.7-#1, pp. 21-45.
*Jean-Francois Hennart (1986). "What Is Internalization?". Weltwirtschaftliches Archiv; V.122-#4, pp. 1791-804.
*Hubert Gatignon and Erin Anderson (1988). "The Multinational Corporation's Degree of Control Over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation". Journal of Law, Economics and Organization, V.4-#2, pp. 305-336.
-Benjamin Gomes-Casseres (1989). "Ownership Structures of Foreign Subsidiaries: Theory and Evidence". Journal of Economic Behavior and Organization, V.11-#1, pp. 1-25.
*Williamson, Oliver (1981) "The Modern Corporation: Origins,
Evolution, Attributes", Journal of Economic Literature, V.19-#4, pp. 1537-1568.
*Hood and Young, Cptrs. 3 & 4.*Scherer, Cptrs. 3 and 4.
Wk.5: The Horst Model: Partial Equilibrium Analysis of the MNE
In the preceding two weeks, we have considered the firm-theoretic foundations of FDI in a primarily discursive fashion. Now we begin an attempt to formalize some of these insights in simple models.
-Caves, Chapter 2, section 2.2
-Horst, Thomas (1973) "The Simple Analytics of Multinational Firm Behavior", in M.B. Connolly and A.K. Swoboda International Trade and Money, London: Allen and Unwin, (Part I: pp. 72-80).
*Thomas Horst (1971) "The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax Rates". Journal of Political Economy; V.79-#5, pp. 1059-1072.
*Thomas Horst (1972) "Firm and Industry Determinants of the Decision to Invest Abroad"; Review of Economics and Statistics, V.54-#?, pp.258-266.
*Michael Adler and G.V.G. Stevens (1974) "The Trade Effects of Direct Investment". Journal of Finance; V.29-#2, pp. 655-676.
*Takao Itagaki (1979). "Theory of the Multinational Firm: An Analysis of the Effects of Government Policies". International Economic Review; V.20-#2, pp. 437-448.
*Larry Samuelson (1982). "The Multinational Firm with Arm's Length Transfer Prices". Journal of International Economics. V.13-#?, pp. 365-374.
*Chander Kant (1988). "Endogenous Transfer Pricing and the Effects of Uncertain Regulation". Journal of International Economics; V.24-#?, pp. 147-157.
*Homi Katrak (1980) "Multinational Monopolies and Monopoly Regulation". Oxford Economic Papers; V.?-#?, pp. 453-466.
*L.W. Copithorne (1971). "International Corporate Transfer Prices and Government Policy". Canadian Journal of Economics; V.4-#3, pp. 324-341.
*E.J.R. Booth and Oscar Jensen (1977). "Transfer Prices in the Global Corporation under Internal and External Constraints". Canadian Journal of Economics; V.10-#3, pp. 434-446.
*Lorraine Eden (1978). "Vertically Integrated Multinationals: A Microeconomic Analysis". Canadian Journal of Economics; V.11-#3, pp. 534-546. (also see comment by T. Itagaki, CJE, V.13-#1, pp. 176-177).
*Lorraine Eden (1983). "Transfer Pricing and Policies Under Tariff Barriers". Canadian Journal of Economics; V.16-#4, pp. 669-685.
*Alan Rugman and Loraine Eden (1985). Multinationals and Transfer Pricing. New York: St. Martins. (especially papers by L. Eden and W. Diewert).
*Hirsch, Seev (1976) "An International Trade and Investment Theory of the Firm", Oxford Economic Papers, V.28-#?. pp.258-270.
*Mark Casson (1983). "Multinationals and Intermediate Product Trade". in Buckley and Casson. pp. 144-171.
Wk. 5a: More General Models of the MNE as Firm
*Alasdair Smith (1987). "Strategic Investment, Multinational Corporations and Trade Policy". European Economic Review; V.31-#?, pp. 89-96.
*Horstmann, Ignatius and James Markusen (1987). "Strategic Investments and the Development of Multinationals". International Economic Review, V.28-#1, pp. 109-121.
*Horstman, Ignatius and James Markusen (1989). "Firm Specific Assets and the Gains from Direct Foreign Investment". Economica; V.56-#221, pp. 41-48.
*Horstmann, Ignatius and James Markusen (1987). "Licensing versus Direct Investment: A Model of Internalization by the Multinational Firm". Canadian Journal of Economics; V.20-#3, pp. 464-481.
*Wilfred Ethier and Henrik Horn (1990). "Managerial Control of International Firms and Patterns of Direct Investment". Journal of International Economics; V.28-#1/2, pp. 25-45.
Wk. 6: Multinationals and Technology Transfer
The firm theoretic approach to analysing MNEs stresses the importance of transactions for which internal hierarchies are more efficient than (international) markets. One particularly important class of such transactions relate to technology. This week we begin by examining the economics of technology transfer from the firm's point of view and conclude with some discussion of the economic effect of foreign technology on host countries. This builds a bridge to our last topic before the mid-term: the general effect of FDI on the economic performance of host countries.
-Caves: Chapter 7.
-Peter Buckley and Mark Casson (1981) "The Optimal Timing of a Foreign Direct Investment"; Economic Journal, V.91-#?, pp. 75-87; B&C, Chapter 5.
-Horst, Thomas (1973) "The Simple Analytics of Multinational Firm Behavior", in M.B. Connolly and A.K. Swoboda International Trade and Money, London: Allen and Unwin, (Part II: pp. 80-84).
-Magee, Stephen P. (1981), "The Appropriability Theory of the MNE", Annals AAPSS, #458, pp. 123-135.
-David Teece (1977) "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-How"; Economic Journal, V.87-#?, pp.242-261.
*Albert Berry (1974). "Static Effects of Technological Borrowing on National Income: A Taxonomy of Cases". Weltwirtschaftliches Archiv; V.110: 580-607.
*Arthur Lake (1979). "Technology Creation and Technology Transfer by Multinational Firms". in Robert Hawkins (ed.) The Economic Effects of the Multinational Corportation (Research in International Business and Finance, V.1). Greenwich: JAI Press, pp. 137-187.
*Richard Caves, Harold Crookell, and J. Peter Killing (198?). "The Imperfect Market for Technology Licenses". Oxford Bulletin of Economics and Statistics; V.?-#?, pp. 248-267.
*John Dunning (1983). "Market Power of the Firm and International Transfer of Technology: A Historical Excursion". International Journal of Industrial Organization, V.1: 333-351.
*Eitan Berglas and Ronald Jones (1977). "The Export of Technology". in Brunner and Meltzer (eds) Optimal Policies, Control Theory and Technology Exports. pp. 159-202.
*Magee, Stephen (1977) "Application of the Dynamic Limit Pricing Model to the Price of Technology and International Technology Transfer", in K. Brunner and A. Meltzer, eds. pp. 203-224.
*Koizumi, Tetsunori and Kenneth Kopecky (1977). "Economic Growth, Capital Movements and the International Transfer of Technical Knowledge." Journal of International Economics; V.7: 45-65.
*Koizumi, Tetsunori and Kenneth Kopecky (1980). "Foreign Direct Investment, Technology Transfer and Domestic Employment Effects". Journal of International Economics; V10: 1-20.
*Robert Hawkins and A.J. Prasad (1981). Technology Transfer and Economic Development (Research in International Business, V. 2). Greenwich: Greenwood Press
*Alan Heston and Howard Pack (1981). Technology Transfer: New Issues, New Analysis (The Annals, V. 458). Beverley Hills: Sage.
*Robert Stobaugh and Louis Wells (1984). Technology Crossing Borders: The Choice, Transfer, and Management of International Technology Flows. Cambridge: Harvard Business School.
Wk. 7: The MNE in General Equilibrium
This week we continue our attempt to formalize the analysis of FDI, now turning to general equilibrium.
-McCulloch, Rachel and Janet Yellen (1982). "Technology Transfer and the National Interest". International Economic Review. V.23-#2, pp. 421-428.
-Jones, Ronald and Fumio Dei (1983). "International Trade and Foreign Investment: A Simple Model". Economic Inquiry; V.21: 449-464.
-Ethier, Wilfred (1986). "The Multinational Firm". Quarterly Journal of Economics. V.102-#?, pp. 805-833.
*Amano, Akhiro (1977) "Specific Factors, Comparative Advantage and International Investment". Economica; V.44-#?, pp. 131-144.
*Batra, R.N. and R. Ramachandran (1980) "Multinational Firms and the Theory of International Trade and Investment," American Economic Review, V.70-#3, pp. 278-290.
*Khan, M.A. (1984). "International Trade and Foreign Investment: A Model with Asymmetric Production". Pakistan Development Review; V.23-#4, pp. 509-530.
*Datta-Chaudhuri, T. and M.A. Khan (1984). "Sector-Specific Capital, Interconnectedness in Production and Welfare". Canadian Journal of Economics; V.17-#3, pp. 489-507. (Comment by L. Young (1986). CJE, V.19-#4, pp. 678-684)
*Gang, I. and S. Gangopadhyay (1985). "Multinational Firms and Government Policy". Economics Letters; V.17-#?, pp. 395-399.
*Gang, I. and S. Gangopadhyay (1990). "LDC Labor Markets, Multinationals and Government Policies". International Review of Economics and Business; V.37-#8, pp. 749-764.
*Krugman, Paul (1979). "A Model of Innovation, Technology Transfer, and the World Distribution of Income". Journal of Political Economy. V.87-#2, pp. 253-266.
*Krugman, Paul (1983) "The `New' Theories of International Trade and the Multinational Enterprise", in Kindleberger and Audretsch eds. The Multinational Corporation in the 1980's, pp. 56-73.
*Helpman, Elhanan (1984) "A Simple Theory of Intenational Trade With Multinational Corporations", Journal of Political Economy, V.92-#3, pp. 451-471.
*Helpman, Elhanan (1985). "Multinational Corporations and Trade Structure". Review of Economic Studies; V.52: 443-447.
*Helpman, Elhanan and Paul Krugman (1985). Market Structure and Foreign Trade. Cambridge: MIT Press. (Chapters 12 and 13).
*Markusen, J.R. (1984) "Multinationals, Multi-plant Economies and the Gains from Trade", Journal of International Economics, V.16-#3/4, pp.205-226.
*Dei, Fumio (1991). "Multinational Corporations and Absolute Advantage: The Symmetric Case". in A. Takayama, et al., eds. Trade, Policy and International Adjustments. San Diego: Academic Press, pp. 77-91.
Wk.8: The MNE and National Economic Performance
One of the primary questions that we will want to answer with regard to multinationals is: how do they affect the economic performance in home and host countries? This week we develop some of the tools appropriate to answering this question. This will require an examination of problems unique to multinationals and of how these problems can be examined in the context of our partial and general equilibrium tools. We will also examine "non-economic" issues that cannot be examined strictly in terms of these tools.
-Caves chapter 10.
-Johnson, Harry G. (1970), "The Efficiency and Welfare Implications of the International Corporation", Kindleberger, 1970, pp. 35-56.
-Hymer, Stephen (1970), "The Efficiency (Contradictions) of Multinational Corporations", American Economic Review, V.60-#2, pp. 441-448 .
-Johnson, Harry G. (1967). "The Possibility of Income Losses from Increased Efficiency of Factor Accumulation in the Presence of Tariffs". Economic Journal, V.77-#305, pp. 151-154.
-Brecher, Richard and Carlos Diaz-Alejandro (1977). "Tariffs, Foreign Capital and Immiserizing Growth". Journal of International Economics. V.7-#?, pp. 317-322.
-Brecher, Richard and Jagdish Bhagwati (1981). "Foreign Ownership and the Theory of Trade and Protection". Journal of Political Economy. V.89: 497-511.
*McDougall, G.D.A. (1960), "The Benefits and Costs of Private Investment From Abroad", Bulletin of the Oxford University Institute of Stastics, V.22-#3, pp. 189-211, also Caves and Johnson, pp.172-194.
*Kemp, Murray (1962). "Foreign Investment and the National Advantage". Economic Record, V.38-#?, pp. 56-62.
*Kemp, Murray (1966). "The Gain from International Trade and Investment: A Neo-Heckscher-Ohlin Approach". American Economic Review, V.56-#4, pp.788-809.
*Jones, Ronald (1967). "International Capital Movements and the Theory of Tariffs and Trade". Quarterly Journal of Economics, V.81-#1, pp. 1-38.
*Minabe, Nobuo (1974). "Capital and Technology Movements and Economic Welfare". American Economic Review; V.64-#6, pp. 1088-1100.
*Brecher, Richard and Ehsan Choudhri (1982). "Immiserizing Investment from Abroad: The Singer-Prebisch Thesis Reconsidered". Quarterly Journal of Economics; V.97-#?, pp. 183-190
*Young, Leslie and Kaz Miyagiwa (1986). "International Investment and Immiserizing Growth".Journal of International Economics; V.20: 171-178.
*David Burgess (1978). "On the Distributional Effects of Direct Foreign Investment". International Economic Review; V.19-#3, pp. 647-664.
*Burgess, David (1980). "Protection, Real Wages, Real Incomes, and Foreign Ownership". Canadian Journal of Economics; V.13-#4, pp. 595-614.
*Caves, Richard (1974) "Multinational Firms, Competition, and Productivity in Host Countries", Economica, V.38-#?, pp. 176-193.
*Dunning, Cptrs. 7 & 13.
*Hood and Young, Cptr. 6.
*Scherer, Cptrs. 11-17.
WK.7: Midterm Examination and Research Proposal Due
II. Political-Economic Approaches to the MNE
Wk. 8: Micro Political-Economy: MNE v. MNE
One of the key attributes of international markets is competiton among firms. While much of this competition is very much like competition in strictly domestic markets, the national character of firms and markets creates special problems. We examine some of these issues here.
-Moran, Theodore (1973), "Foreign Expansion as an `Institutional Necessity' for U.S. Corporate Capitalism", World Politics, V.25-#3, pp. 369-386.
-Caves, Richard (1977), "International Cartels and Monopolies in International Trade", Dornbusch and Frenkel, pp 39-75; part I only (pp. 39-52).
-Casson, Mark (1985). "Multinational Monopolies and International Cartels". in Buckley and Casson, pp. 60-97.
*S. Hymer and R. Rowthorn (1970) "Multinational Corporations and International Oligopoly: The Non-American Challenge," in Kindleberger, The International Corporation, pp. 57-91.
*Rowthorn, Robert (1971), "Imperialism in the 1970's--Unity or Rivalry", New Left Review, #69, pp. 31-51.
*Franko, Lawrence G. (1978), "Multinationals: The End of U.S. Dominance?", Harvard Business Review: V.56-#?, pp. 93- 101.
*Knickerbocker, Fredrick T. (1973), Oligopolistic Reaction and Multinational Enterprise, Cambridge: Graduate School of Business Administration, Harvard University.
*Flowers, E.B. (1976). "Oligopolistic Reactions in European and Canadian Direct Investment in the US". Journal of International Business Studies; V.7-#3, pp. 43-55.
*Graham, Edward (1978). "Transatlantic Investment by Multinational Firms: A Rivalistic Phenomenon". Journal of Post-Keynesian Economics; V.1-#1, pp. 82-99.
*Graham, Edward (1981). "Intra-Industry Direct Foreign Investment, Market Structure, Firm Rivalry and Technological Performance". in A. Erdilek, ed. Multinationals as Mutual Invaders. London:?, pp. 67-96.
*Graham, Edward (1989). "Strategic Interaction Among Multinational Firms and International Direct Investment". in C.N. Pitelis and R. Sugden, eds. The Nature of the Transnational Firm. London: Routledge, Chapman and Hall.
*Yu, Chwo-Ming and Kiyohiko Ito (1988). "Oligopolistic Reaction and Foreign Direct Investment: The Case of the US Tire and Textile Industries". Journal of International Business Studies. V.19-#3, pp. 449-460.
*Mark Casson and George Norman (1983) "Pricing and Sourcing Strategies in a Multinational Oligopoly"; in Casson, ed. The Growth of International Business. pp. 63-83.
*Casson, Mark (1980) "Foreign Investment and Economic Warfare: Internalizing the Implementation of Threats". in Casson, The Firm and the Market, Chapter 3.
*Hargreaves-Heap, Sean and Kirsty Hughes (1990). "Strategic Uncertainty and Multinationality". Economic Notes; V.?-#3, pp. 417-428
*Dale Osborne (1976) "Cartel Problems"; American Economic Review, V.66-#5, pp. 835-844.
*Michael Waterson (1984) Economic Theory of the Industry; Cambridge: Cambridge University Press. (Esp. cptrs 2 & 3)
*Scherer, Chapters 5-10.
Wk.9: Macro Political Economy
This week we examine the creation and maintenance of rules regulating FDI. We will draw on political science and sociology for a set of concepts that help us here.
-Hood and Young, Cptr. 8.
-Charles Lipson (1985) "An Unruly World? Anarchy, Rules and International Capital Flows"; in Standing Guard: Protecting Foreign Capital in the 19th and 20th Centuries; Berkeley: University of California Press, cptr. 1, pp. 1-33.
*Murray, Robin (1971), "The Internationalization of Capital and the Nation-State", New Left Review, #67, pp. 84-109.
*Warren, Bill (1971), "Comment on Murray", New Left Review, #68, pp. 83-88.
*Vernon, Raymond (1977), Storm Over Multinationals, Cambridge: Harvard University Press, chapter 8, pp. 175-190.
*Waltz, Kenneth (1970), "The Myth of National Interdependence", Kindleberger, The International Corporation, pp. 205-233.
*Hymer, Stephen (1972),"The Multinational Corporation and the Law of Uneven Development", Bhagwati, Economics and World Order from the 1970s to the 1990s, pp. 113-140.
*Galtung, Johan (1971), "A Structural Theory of Imperialism", Journal of Peace Research, V.8-#2, pp. 81-117.
*Gilpin, Robert (1975), U.S. Power and the Multinational Corporation, New York: Basic Books, chapters VI and VII.
*Nathan Rosenberg (1982) "U.S. Technological Leadership and Foreign Competition: de te fabula narratur?"; in Inside the Black Box: Technology and Economics, Cptr. 12, pp. 280-291.
*Charles Lipson (1985) "International Property Rules in the 19th and 20th Centuries"; Part I of Standing Guard.
*Magee, Stephen and Leslie Young (1983), "Multinationals, Tariffs and Capital Flows with Endogenous Politicians", in Kindleberger and Audretsch, pp. 21-37.
*Bhagwati, Jagdish, et al. (1987). "Quid Pro Quo Foreign Investment and Welfare: A Political Economy Theoretic Model". Journal of Development Economics; V.27-#?, pp. 127-138.
*Wong, Kar-Yiu (1987). "Optimal Threat of Trade Restriction and Quid Pro Quo Foreign Investment". ms.: University of Washington.
*Dinopoulos, Elias (1989). "Quid Pro Quo Foreign Investment". Economics and Politics; V.1-#2, pp. 145-160.
*BHM chapter 9.
Part III: MNEs and Industrial Development in AICs
Wk.10: MNEs and Capital-Labor Relations
The option of FDI can obviously change the balance of power between capital and labor in both home and host countries. This has become a heated political issue world-wide. This week we apply the theory developed in the first part of the course to an examination of this problem, and we will also review some of the evidence.
-BHM chapter 4.
-Caves chapter 5.
*Kujawa, Duane (1979), "Collective Bargaining and Labor Relations in Multinational Corporations: A U.S. Public Policy Perspective", Hawkins, The Economic Effects of Multinational Corporations, Greenwich: JAI Press, pp. 25-61.
*Peter Enderwick (1985) Multinational Business and Labor; New York: St. Martins.
*Chaudhuri, Adhip (1983), "American Multinationals and American Employment", in Kindleberger and Audretsch, pp. 263-277.
*Bowles, Samuel (1983), "The Post-Keynesian Capital-Labor Stalemate", Socialist Review, #65, pp. 45-72.
*S. Bowles, D. Gordon and T. Weisskopf (1983) Beyond the Wasteland, New York: Anchor Press/Doubleday, Chapter 4.
Wk.11: MNEs, the Balance of Payments and Deindustrialization
It has often been suggested that FDI, by undermining the trade performance of a home country, has dramatically negative effects on both the balance of payments and the nation's industrial structure. We will examine the evidence for this proposition in the context of the theoretical structure developed earlier in the semester.
-BHM chapter 3.
-Helleiner, Gerald .K. (1977), "Transnational Enterprises and the New Political Economy of U.S. Trade Policy," Oxford Economic Papers, V.29-#1, pp. 102-116
-Kurth, James (1979), "The Political Consequences of the Product Cycle", International Organization, V.33-#1, pp. 1- 34.
*Magee, Stephen (1977) "Multinational Corporations, The Industry Technology Cycle and Development", Journal of World Trade Law, V.11-#4, pp. 297-321.
*John Dunning (1981) "Explaining the International Direct Investment Position of Countries: Towards a Dynamic or Developmental Approach"; Weltirtschaftliches Archiv, V.117- #1, pp. ??; also in Dunning (1981), Cptr 5.
*McCulloch, Rachel and Janet Yellen (1982). "Technology Transfer and the National Interest". International Economic Review; V.23: 421-428.
*Nathan Rosenberg (1981) "The International Transfer of Technology: Implications for the Industrialized Countries"; in N. Rosenberg (1982) Inside the Black Box: Technology and Economics, Cambridge: Cambridge University Press.
*John Dunning (1981) "The Consequences of International Transfer of Technology by Multinationals: Some Home Country Implications"; in Dunning, Chapter 12.
*Edwin Mansfield and Anthony Romeo (1980) "Technology Transfer to Overseas Subsidiaries by U.S. Based Firms", Quarterly Journal of Economics, V.95-#?, pp. 737-750.
*Prachowny, M.F.J. and J.D. Richardson (1975) "Testing a Life-Cycle Hypothesis of the Balance of Payments Effects of Multinational Corporations", Economic Inquiry, V.13-#?, pp. 81-97.
*Lipsey, R.E. and M.Y. Weiss (1981) "Foreign Production and Exports in Manufacturing Industries", Review of Economics and Statistics, V.63-#4, pp. 488-494.
*Folker Frobel, Jurgen Heinrichs and Otto Kreye (1980) The New International Division of Labor, Cambridge: Cambridge University Press; Parts I and II.
*Norman Glickman and Douglas Woodward (1989). The New Competitors: How Foreign Investors are Changing the U.S. Economy. New York: Basic Books.
*Charles Lipson (1985) "The Domestic Sources of U.S. Anti-Expropriation Policy"; Part II of Standing Guard.
*Robert Pastor (1980) Congress and the Politics of U.S. Foreign Economic Policy, Berkeley: University of California Press; Part III.
*Joanne Gowa (1984) "Subsidizing American Corporate Expansion Abroad: Pitfalls in the Analysis of Public and Private Power"; World Politics, V.?-#2, pp. 180-203.
*R. Gilpin (1975) "The Political Economy of Foreign Investment," in Gilpin, Robert (1975), U.S. Power and the Multinational Corporation, New York: Basic Books, pp. 44-78.
Wk.12: MNEs, Tax and Antitrust Policy
The opportunity to engage in FDI creates the possibility for a firm to engage in strategic behavior vis-a-vis the tax and regulatory authorities of the home country in addition to its competition with other firms. We examine the implications of this for both firms and governments.
-BHM chapters 6 and 7 (pp. 248-271 only); Caves chapter 8.
*Sanjaya Lall (1973) "Transfer Pricing by Multinational Manufacturing Firms", Oxford Bulletin of Economics and Statistics, V.35-#3, pp.173-195.
*Lars Nieckels (1976) Transfer Pricing in Multinational Firms, Stockholm: Almqvist and Wicksell.
*Eric Bond (1976). "Optimal Transfer Pricing When Tax Rates Differ". Southern Economic Journal; V.47: 191-200.
*Alan Rugman and Lorraine Eden (1985) Multinationals and Transfer Pricing. New York: St. Martin's.
*Caves, Richard (1977), "International Cartels and Monopolies in International Trade", Dornbusch and Frenkel, International Economic Policy: Theory and Evidence, pp. 39-75, read only part II, pp. 52-75.
*Homi Katrak (1980). "Multinational Monopolies and Monopoly Regulation". Oxford Economic Papers. pp. 453-456.
*Homi Katrak (1984). "Pricing Policies of Multinational Enterprises: Host Country Regulation and Welfare". International Journal of Industrial Organization; V.2: 327-340.
*Thomas Prusa (1990). "An Incentive Compatible Approach to the Transfer Pricing Problem". Journal of International Economics; V.28-#1/2, pp. 155-172.
*Thomas Gresik and Douglas Nelson (1991). "Regulating a Multinational Monopolist with and without Subsidies: More on the Incentive Compatible Approach to the Transfer Pricing Problem". ms: Syracuse University.
*James Brander and Barbara Spencer (1987). "Foreign Direct Investment with Unemployment and Endogenous Taxes and Tariffs". Journal of International Economics; V.22: 257-279.
*H.G. Grubel (1974) "Taxation and Rates of Return From Some U.S. Asset Holdings Abroad 1960-1969"; Journal of Political Economy, V.82-#?, pp. 469-487.
*Bela Balassa (1977). "Effects of Commercial Policy on International Trade, the Location of Production, and Factor Movements". in B. Ohlin et al. (eds.) The International Allocation of Economic Activity; New York: Holmes and Meier.
*John Lunn (1980). "Determinants fo US Direct Investment in the EEC: Further Evidence". European Economic Review; V.13: 93-101.
*Anthony Scaperlanda and Robert Balough (1983). "Determinants of US Direct Investment in the EEC Revisited". European Economic Review; V.21: 381-390.
*Andrew R. Blair (1987). "The Relative Distribution of US Direct Investment: The UK/EEC Experience". European Economic Review; V.31: 1137-1144.
*K. Hamada (1966) "Strategic Aspects of Taxation on Foreign Investment Income"; Quarterly Journal of Economics, V.80-#3, pp. 361-375.
*Michael Laver (1977) "Intergovernmental Policy on Multinational Corporations: A Simple Model of Tax Bargaining", European Journal of Political Research, v.5-#?, pp. 363-380.
*Eric W. Bond and Larry Samuelson (1989). "Strategic Behavior and the Rules for International Taxation of Capital". Economic Journal; V.1989-#?, pp. 1099-1111.
*Martin Feldstein and David Hartman (1979) "The Optimal Taxation of Foreign Source Income", Quarterly Journal of Economics, V.?-#4, pp. 613-629.
*Paul Goldberg and C.P. Kindleberger (1970) "Toward a GATT for Investment: A Proposal for Supervision of the International Corporation"; Law and Policy in International Business, V.2-#2, pp. 295-325.
*Douglas Rosenthal and William Knighton (1982) National Laws and International Commerce: The Problem of Extraterritoriality, London: Routledge & Kegan Paul/RIIA.
*Hood and Young, Cptr. 7.
*Scherer, Cptrs. 18-21.
Part IV: MNEs and Industrial Development in LDCs
Wk.13: MNEs and Economic Performance in LDCs
The MNE may make a wide variety of contributions to the development process: provision of capital and technlolgy; improved access to international markets; etc. At the same time, however, development with extensive MNE participation will generally imply different patterns of growth and distribution of the benefits of growth than development without such participation. This week we examine some of the benefits and costs to FDI in LDCs.
-Caves chapter 9.
-BHM pp. 354-369.
-Helleiner, Gerald K. (1973), "Manufactured Exports from Less Developed Countries and Multinational Firms", Economic Journal, V.83-#329, pp. 21-47.
-D. Bennett and K. Sharpe (1979) "Transnational Corporations and the Political Economy of Export Promotion," International Organization, V.33-#2, pp. 177-201.
-Lall, S. (1978), "Transnationals, Domestic Enterprises and Industrial Structure in Host LDCs: A Survey", Oxford Economic Papers, V.30-#2, pp. 217-248.
*Bardhan (1982) "Imports, Domestic Production, and Transnational Vertical Integration"; JPE; V.90-#5; pp. 1020-1034.
*Hood and Young, Cptr. 5.
*M. Sharpston (1976) "International Subcontracting," World Development, V.?-#?, pp. 330-337.
*Deepak Nayyar (1978) "Transnational Corporations and Manufactured Exports from Poor Countries"; Economic Journal, V.88-#1, pp. 59-84.
*Gerald K. Helleiner (1981) Intrafirm Trade and the Developing Countries, New York: St. Martins Press.
*Joseph Grunwald and Kenneth Flamm (1985) The Global Factory: Foreign Assembly in International Trade, Washington, D.C.: Brookings.
*Moxon, Richard (1979), "The Cost, Conditions, and Adaptation of MNC Technology in Developing Countries", Hawkins, 1979, pp. 189-223.
*W.H. Courtney and D.M. Leipziger (1975) "Multinational Corporations in LDCs: The Choice of Technology"; Oxford Bulletin of Economics and Statistics, V.57-#?, pp. 297-303.
*R.E. Lipsey, I.B. Kravis and R.A. Roldan (1982) "Do Multinational Firms Adapt Factor Proportions to Relative Factor Prices?"; in A.O. Krueger, ed Trade and Employment in Developing Countries: Factor Supply and Substitution, Chicago: University of Chicago Press/NBER, pp. 215-255.
*Newfarmer, Richard (1983), "Multinationals and Marketplace Magic in the 1980s", in Kindleberger and Audretsch, pp. 162- 197.
*V. Bornschier C. Chase-Dunn and R. Rubinson (1978) "Cross-National Evidence of the Effects of Foreign Investment and Aid on Economic Growth and Inequality: A Survey of Findings and a Reanalysis," American Journal of Sociology, V.84-#3, pp. 651-683.
*V. Bornschier and T.H. Balmer-Cao (1979) "Income Inequality: A Cross-National Study of the Relationships Between MNC Penetration, Dimensions of Power Structure and Income Distribution," American Sociological Review, V.44-#?, pp. 487-506.
*E. Weede and H. Tiefenbach (1981) "Three Dependency Explanations of Economic Growth: A Critical Evaluation," European Journal of Political Research, V.9-#?, pp. 391-406.
*Biersteker, Thomas (1981) Distortion or Development: Contending Perspectives on the Multinational Corporation, Cambridge: MIT Press.
*Streeten, Paul (1973), "The Multinational Enterprise and The Theory of Development Policy," World Development, V.1- #10, pp. 1-14.
*Singer, Hans (1950), "The Distribution of Gains Between Investing and Borrowing Countries", American Economic Review, V.40-#2, pp. 473-485; Caves and Johnson.
*Prebisch, Raoul (1959), "Commercial Policy in the Underdeveloped Countries", American Economic Review, V.49- #2, pp. 251-273; Caves and Johnson.
*Kravis, Irving (1970), "Trade as a Handmaiden of Growth", Economic Journal, V.80-#?, pp. 850-873.
*Balassa, Bela (1980), "The Process of Industrial Development and Alternative Development Strategies", Princeton Essays in International Finance, #141.
Wk.14: Investment Incentives and Performance Requirements
Many developing countries (as well as many AICs) attempt to attract FDI by offering a variety of economic incentives (eg. tax holidays, free infrastructural investment, capital subsidies, etc.). At the same time governments also attempt to induce certain particular practices via performance requirements (eg. domestic content rules, export minimums, local participation, etc.) The effects of these incentives and performance requirements on the local economy and on the interaction between governments and firms is analysed this week.
-D. Usher (1977) "The Economics of Tax Incentives to Encourage Investment in Less Developed Countries"; Journal of Development Economics, V.4-#?, pp. 119-148.
-Nathan Fagre and Louis Wells (1982) "Bargaining Power of Multinationals and Host Governments", Journal of International Business Studies, V.13-#1, pp. 9-23.
-Dennis Encarnation and Louis Wells (1985) "Sovereignty en garde: Negotiating with Foreign Investors"; International Organization, V.39-#1, pp.47-78.
*K. Hamada (1974) "An Economic Analysis of the Duty-Free Zone"; Journal of International Economics, V.4-#?, pp. 225- 241.
*Streeten, Paul (1976), "Bargaining With Multinationals", World Development, V.4-#3, pp. 225-229.
*Dunning, John and M. Gilman (1976), "Alternative Policy Prescriptions and the Multinational Enterprise"; in G. Curzon, ed. The Multinaltional Enterprise in a Hostile World, London: Macmillan; also Dunning, Cptr. 14.
*C. Davidson, S. Matusz, and M. Kreinin (1985) "Analysis of Performance Standards for Direct Foreign Investment", Canadian Journal of Economics, V.18-#4, pp. 876-890.
*Christopher Doyle and Sweder van Wijnbergen (1985). "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays". MS.: The World Bank (CPD).
*Eric Bond and Larry Samuelson (1986). "Tax Holidays as Signals". AER, V.76-#4, pp. 820-826.
*Eric Bond and Larry Samuelson (1989). "Bargaining with Commitment, Choice of Techniques, and Direct Foreign Investment". Journal of International Economics; V.26-#?, pp. 77-97.
*H.Keith Hall and Douglas Nelson (1991). "The Political-Economy of Foreign Direct Investment, Part I: Characterizing the Economic Environments". ms: Syracuse University.
*H.Keith Hall and Douglas Nelson (1991). "The Political Economy of Foreign Direct Investment, Part II: The Foundations of Bargaining Power". ms: Syracuse University.
*David Lim (1983) "Fiscal Incentives and Direct Foreign Investment in Developing Countries"; Journal of Development Studies, V.19-#?, pp. 201-212.
*Folker Frobel, Jurgen Heinrichs and Otto Kreye (1980) The New International Division of Labor, Cambridge: Cambridge University Press; Part III.
*V.N. Balasubramanyam (1984) "Incentives and Disincentives for Foreign Direct Investment in Less Developed Countries"; Weltwirtschaftliches Archiv, V.120-#?, pp. 720-734.
*Stephen Guisinger and Associates (1985) Investment Incentives and Performance Requirements: Patterns of International Trade, Production, and Investment, New York: Praeger.
*Eric Bond and Stephen Guisinger (1985) "Investment Incentives as Tariff Substitutes: A Comprehensive Measure of Protection"; Review of Economics and Statistics, V.67-#1, pp.91-97.
*Mario Blejer and Mohsin Khan (1983) "Government Policy and Private Investment in Developing Countries"; IMF Staff Papers, V.?-#?, pp.??
Wk.15: The Politics of the LDC-MNE Relationship
A standard concern of LDC governments is that MNEs are able to draw on extensive economic and political connections beyond the capacity of small, weak governments. On the other hand, MNE management is often concerned about the stability of the political-economic environment in which it invests. We close the semester be taking a brief look at this complicated question.
-BHM pp. 369-400.
-P. Evans (1984). "Transnational Linkages and the Economic Role of the State: An Analysis of Developing and Industrialized Nations in the Post-World War II Period". in P. Evans, D. Rueschmeyer and T. Skocpol, eds. Bringing the State Back In. Cambridge: Cambridge University Press, pp. 192-226.
-D. Bennett and K. Sharpe (1979) "Agenda Setting and Bargaining Power: The Mexican State versus Transnational Automobile Corporations," World Politics, V.32-#1, pp. 57- 89.
-Grieco, Joseph (1982), "Between Dependency and Autonomy: India's Experience With the International Computer Industry", International Organization, V.36-#3, pp. 609-632
*David Jodice (1980) "Sources of Change in Third World Regimes for Foreign Direct Investment--1968-1976"; International Organization, V.34-#2, pp. 177-206.
*Richard Herring, ed. (1983) Managing International Risk, Cambridge: Cambridge University Press.
*Jeffrey D. Simon (1984) "A Theoretical Perspective on Political Risk"; Journal of International Business Studies, V.15-#?, pp. 123-143.
*Moran, Theodore (1974), The Politics of Dependence: Copper in Chile; Princeton: Princeton University Press.
*Moran, Theodore (1978), "Multinational Corporations and Dependency: A Dialogue for Dependentistas and Non-Dependentistas", International Organization, V.32-#1, pp. 170-200.
*Evans, Peter (1979), Dependent Development: The Alliance of Multinational, State and Local Capital in Brazil, Princeton: Princeton University Press.
*Gereffi, Gary (1983), The Pharmaceutical Industry and Dependency in the Third World, Princeton: Princeton University Press.
*G. Gereffi and P. Evans (1981) "Transnational Corporations, Dependent Development, and State Policy in the Semi-Periphery: A Comparison of Brazil and Mexico". Latin American Research Review; V.16-#3, pp. 31-64.
*F. Coronil and J. Skurski (1982) "Reproducing Dependency: Auto-Industrial Policy and Petrodollar Circulation in Venezuela," International Organization, V.36-#1, pp. 61-94.
*Sunkel, Osvaldo (1972), "Big Business and Dependencia", Foreign Affairs, V.50-#?, pp. 517-531.
*Kaplinsky, R. (1979) "Export-Oriented Growth: a Large International Firm in a Small Developing Country"; World Development, V.7-#8/9, pp. 825-834. (Kenyan case)
*Langdon, Steven (1981). Multinational Corporations in the Political Economy of Kenya. London: Macmillan.
*Biersteker, Thomas (1986). Multinationals, The State, and Control of the Nigerian Economy. Princeton: Princeon Press.
*S. Haggard and T. Cheng (1987). "State and Foreign Capital in the East Asian NICS". in F. Deyo, ed. The Political Economy of New Asian Industrialism. Ithaca: Cornell University Press, pp. 84-135.
*C. Huang (1989). "The State and Foreign Investment: The Cases of Taiwan and Singapore". Comparative Political Studies; V.22-#1, pp. 93-121.