Essay/abstract International Economics

The increasing importance of multinational corporations in the global economy has raised

interest in analyzing the political power they exercise over governments. The purpose of

this paper is to investigate the variables affecting multinationals’ political role as a

consequence of their economic relevance.

Supportive evidence shows that differences in institutions pose a barrier to the global

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expansion of emerging multinationals. Typically, companies rely upon political connections

– in particular managers’ interpersonal ties with public officials – when entering into new

markets. These kinds of relationships are fundamental for firms to obtain credibility and

license to operate in the eyes of the public. Moreover, companies can take advantage of

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preferential treatment by government-owned enterprises or lighter taxation .

The quality of a country’s institutions is an important factor in determining the bargaining

power of the government in face of multinationals. Studies on negotiations between

countries and resource extracting firms demonstrated that a government’s accountability to

its people is likely to influence its bargaining power. The more democratic a government is,

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the better the deals it can obtain .

An innovative view of the multinational corporation sees it as endowed with attributes of

sovereign states. They have large resources at their disposal and they are part of the

complex network of international politics. Corporations helped the affirmation of weak and

vulnerable political regimes, such as oil companies in Kuwait. Moreover, they facilitated the

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introduction of nation-states to the world political system, as the example of Lybia shows.

Multinationals are increasingly drawn into political roles and perform tasks traditionally

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associated with the state . They have the ability of enforcing internal decisions across

countries – e.g. product and performance standards, codes of conduct – which states and

intergovernmental organizations sometimes lack. This study also highlights the extension

of corporate lobbying by which companies exercise power over governments as they

become international, underlining that it has become a standard practice.

Finally, this paper is intended to explore the effect of competition on multinational 6

bargaining power. The more intense the competition, the weaker the bargaining power .

This has important implications for the success of corporations, because when their

bargaining position is strong, they tend to experience a relatively low level of intervention

in their operations. Furthermore, when multinationals are able to convince host

governments that their management practices are responsive to the needs of host nations,

they are likely to obtain a favorable bargaining outcome.

1 Chen L, Li Y, Fan D. (2017) How do emerging multinationals configure political

connections across institutional contexts? Global Strategy Journal, 1–24.

2 Faccio, M. (2006). Politically connected firms. American Economic Review, 96.

3 McMillan, M., Waxman, A., (2007) Profit sharing between governments and multinationals

in natural resource extraction. National Bureau of Economic Research.

4 Ostbrberg, D., (1971) The multinational corporation: expanding the frontiers of world

politics. The Journal of Conflict Resolution, 457.

5 Ruggie, J. G., (2017) Multinationals as global institutions: Power, authority and relative