A Model of Government—MNC Bargaining

Building on the discussion of government–MNC relations in Chapter 5, in this chapter the project-level negotiations between governments and MNCs over inward investment are examined. It is argued that the key factor in negotiations are perceptions of bargaining power, and a differentiation is made between potential and actual power. Derived from political economy and dependency bargaining theory, potential power is argued to depend on the alternatives and commitment of each bargaining actor while actual power depends on the ability and willingness to implement potential power. Alternatives indicate the degree of mobility of the MNC and alternative economic development options for the government, while commitment is a function of the strategy of each actor. Ability is a function of the political constraints and institutional structure of each actor, while willingness to exercise power depends on implicit assumptions, in particular government perceptions relating to the benefits and costs of inward investment. A formal bargaining model is developed, conceptualising potential power and its implementation, and it is argued that the model can be used as heuristic tool to analyse government–MNC bargaining and other bargaining relationships.