The Obsolescing ‘Bargaining Model’? MNC-Host Developing Country Relations Revisited

Abstract

The traditional bargaining model of MNC-host developing country relations has become obsolete. Today, those relations are better understood as the result of a two-tier, multi-party bargaining process. Tier-1 bargaining, between the governments of host and home countries, occurs bilaterally or through multilateral institutions. It produces macro rules on FDI that affect micro negotiations in Tier-2 (per the traditional bargaining model). The extent of FDI liberalization resulting from Tier-1 bargaining varies predictably across home-host country pairs and industries. Suggestions for testing the two-tier bargaining model are also presented.