Abstract

Globalization of the world economy and proliferation of multinational corporations (MNCs) has dramatically affected the power balance among international actors. On one hand, MNCs have long influenced the states in which they operate, with the consequent erosion of state sovereignty. On the other, states directly affect MNCs, in effect becoming another factor of production in addition to the economist’s traditional set of labor, land, and capital. This article introduces a theoretical model based on the interaction of the MNC, the local state, and the local market to predict and explain the economic returns that the MNC will earn on its investment in the local market.