Multinational enterprise and economic analysis

405 Pages·2007·1.603 MB·English

by  Richard E Caves

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MULTINATIONALENTERPRISEANDECONOMICANALYSIS
THIRDEDITION
Multinationalenterpriseisanimportantsubjectforstudentsandresearchers,
bothpractitionersofbusinessadministrationandscholarsofeconomics.This
highly accessible book surveys the fruits of research from both quarters. It
showshoweconomicanalysiscanexplainmultinationals’activitypatternsand
how economics can shed conceptual light on problems of business policies
andmanagerialdecisionsarisinginpractice.Itaddressesthewelfareproblems
arisingfrommultinationals’activitiesandthelogicofgovernments’preferences
andchoicesintheirdealingswithmultinationals.Thebookisreadilyusefulto
bothresearchersandstudents.Thisthirdeditionincorporatesknowledgeabout
multinationalsaccumulatedoverthepastdecadeofresearch.
RichardE.CavesistheNathanielRopesProfessorofPoliticalEconomy,Emer-
itus,atHarvardUniversity.Heistheauthorofmanyarticlesonmultinational
enterpriseandothertopicsinthefieldsofinternationaleconomicsandindustrial
organization.Heistheco-authorofaleadingtextbookoninternationaleco-
nomics,WorldTradeandPayments.Hismostrecentbooksdealwiththeartsand
entertainmentindustries,CreativeIndustries:ContractsbetweenArtandCom-
merceandSwitchingChannels:OrganizationandChangeinTVBroadcasting.
i
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CAMBRIDGESURVEYSOFECONOMICLITERATURE
MultinationalEnterpriseandEconomicAnalysis
ThirdEdition
RichardE.Caves,HarvardUniversity
MultinationalEnterpriseandEconomicAnalysis,surveysthecontributionsthateco-
nomicanalysishasmadetoourunderstandingofwhymultinationalenterprisesexistand
theirconsequencesfortheworkingsofthenationalandinternationaleconomies.Cover-
ingboththeoriesandtestsofhypotheses,andsynthesizingmaterialfromsocialscience
andapplieddisciplines,RichardE.Cavesdevelopsthelogicbehindpublicpoliciesthat
affectsmultinationalenterprises.Heshowsthepointsofharmonyandconflictbetween
nationalpoliciesandsourcesofdiscrepancybetweennationalandworldwelfare.The
booksummarizeswhateconomistshavelearnedaboutwhymultinationalfirmsstretch
their activities across national borders and what consequences their presence has for
competinglocalbusinesses,publicpolicy-makers,andthegeneralpublic.
ProfessorCaveshascompletelyupdatedthebooktocovercontributionsappearing
through2005.Manypartshavebeenrewrittentoreflectnewideasandlinesofresearch
appearingsincethesecondedition.Itremainstheonlysurveyvolumetodrawequally
onanalyticalcontributionsofbotheconomicsandbusinessadministrationbearingon
themultinationalfirm.
Editor
ProfessorJohnPencavel,StanfordUniversity
The literature of economics is rapidly expanding, and within just a few years, many
subjectshavechangedinrecognition.Perceivingthestateofknowledgeinfast-developing
subjectsisdifficultforstudentsandtimeconsumingforprofessionaleconomists.This
seriesofbooksisintendedtohelpwiththisproblem.Eachbookgivesaclearstructure
toandbalancedoverviewofthetopicandiswrittenatanintelligiblelevelforthesenior
undergraduate.Theywillbeusefulforteachingaswellasprovideamature,yetcompact,
presentationofthesubjectforeconomistswishingtoupdatetheirknowledgeoutside
theirownspecialties.
Othertitlesintheseries
MarkBlaug,TheMethodologyofEconomics:OrHowEconomistsExplain
(SecondEdition)
RobertClarkandJosephSpengler,TheEconomicsofIndividualandPopulationAging
ThrainnEggertsson,EconomicBehaviorandInstitution
AnthonyC.Fisher,ResourceandEnvironmentalEconomics
HelmutFrisch,TheoriesofInflation
JackHirshleiferandJohnG.Riley,TheAnalyticsofUncertaintyandInformation
PeterIsard,ExchangeRateEconomics
MortonI.KamienandNancyL.Schwarts,MarketStructureandInnovation
AnneO.Krueger,ExchangeRateDetermination
ToddSandlerandKeithHartley,TheEconomicsofDefense
StevenM.Sheffrin,RationalExpectations
JohnB.ShovenandJohnWhalley,ApplyingGeneralEquilibrium
E.RoyWeintraub,Microfoundations:TheCompatibilityofMicroeconomics
andMacroeconomics
ii
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Multinational Enterprise and Economic
Analysis
Third Edition
RICHARD E. CAVES
HarvardUniversity
iii
CAMBRIDGEUNIVERSITYPRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo
Cambridge University Press
The Edinburgh Building, Cambridge CB28RU, UK
Published in the United States of America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridge.org/9780521860130
© Richard E. Caves 2007
This publication is in copyright. Subject to statutory exception and to the provision of
relevant collective licensing agreements, no reproduction of any part may take place
without the written permission of Cambridge University Press.
First published in print format 2007
ISBN-13 978-0-511-29519-5 eBook (EBL)
ISBN-10 0-511-29519-7 eBook (EBL)
ISBN-13 978-0-521-86013-0 hardback
ISBN-10 0-521-86013-X hardback
ISBN-13 978-0-521-67753-0 paperback
ISBN-10 0-521-67753-X paperback
Cambridge University Press has no responsibility for the persistence or accuracy of urls
for external or third-party internet websites referred to in this publication, and does not
guarantee that any content on such websites is, or will remain, accurate or appropriate.
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Contents
Preface page ix
1. TheMultinationalEnterpriseasanEconomicOrganization 1
1.1. HorizontalMultiplantEnterprisesandtheMNE 2
1.2. VerticallyIntegratedMNEs 15
1.3. PortfolioDiversificationandtheDiversifiedMNE 22
1.4. Summary 27
2. TheMNEandModelsofInternationalEconomicActivity 29
2.1. ForeignDirectInvestmentandInternationalCapitalFlows 29
2.2. ExportingorForeignDirectInvestment? 32
2.3. ForeignInvestmentandResourceAllocationintheWorld
Economy 45
2.4. DistributionofForeignInvestmentAmongCountries 56
2.5. Summary 65
3. OrganizationandGrowthoftheMNE 68
3.1. ExpansionoftheFirm 68
3.2. OrganizationalStructure 78
3.3. EffectsofOrganization:NewVentureorAcquisition? 85
3.4. JointVenturesorOtherAgreementBetweenFirms? 91
3.5. Summary 102
4. PatternsofMarketCompetition 105
4.1. ForeignInvestmentandOligopoly 105
4.2. MarketBehaviorwithMNEsPresent 113
4.3. CompetitionPolicyandNationalWelfare 122
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vi Contents
4.4. VerticallyIntegratedMNEsandCompetitionforResource
Rents 127
4.5. Summary 135
5. IncomeDistributionandLaborRelations 137
5.1. IncomeDistributioninGeneralEquilibrium 137
5.2. EmploymentandWages:ShortRunandLongRun 143
5.3. Labor-ManagementRelationsandCollectiveBargaining 152
5.4. Summary 159
6. InvestmentBehaviorandFinancialFlows 161
6.1. CapitalFormationandForeignDirectInvestmentFlows 162
6.2. Long-TermFinancingDecisionsandFinancial-Asset
Markets 170
6.3. Foreign-ExchangeRates,Short-TermTransactions 183
6.4. Summary 187
7. TechnologyandProductivity 190
7.1. TheMNEasProducerofTechnicalKnowledge 190
7.2. LicensingorForeignDirectInvestment? 195
7.3. General-EquilibriumandWelfareAspects 206
7.4. KnowledgeStocksandSpillovers 212
7.5. Summary 220
8. Taxation,MNEs’Behavior,andEconomicWelfare 222
8.1. CorporationIncomeTaxes,MarketDistortions,
andWorldWelfare 222
8.2. TaxConventionsandNationalWelfare 227
8.3. NationalTaxPolicies:EmpiricalPatterns 235
8.4. EffectsofTaxationonMNEs’Behavior 240
8.5. Summary 250
9. MultinationalsinDevelopingCountriesandEconomies
inTransition 253
9.1. DeterminantsofMNEs’Activities 254
9.2. EffectsonEconomicDevelopment 265
9.3. Third-WorldMultinationals 280
9.4. EconomiesinTransition 283
9.5. Summary 286
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Contents vii
10. PublicPolicy 289
10.1. NationalandInternationalWelfare 289
10.2. NationalPolicies:ABehavioralApproach 295
10.3. InternationalRegulation 305
10.4. Summary 308
Bibliography 311
NameIndex 375
SubjectIndex 388
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