The Locke Institute series
Edited by Ram Mudambi, Pietro Maria Navarra and Giuseppe Sobbrio
Chapter 10: Political Orientation and Multinational Investment Flows into Italy
Ram Mudambi, Pietro Navarra and Giuseppe Sobbrio 1. INTRODUCTION In the post-Soviet era, governments of all hues tend to view multinational enterprises (MNEs) as sources of scarce investment funds and desirable high value added jobs (UNCTAD, 1997). The ideal MNE investment from the point of view of the local government consists of a single facility with regional and preferably global R&D, production and marketing responsibility. Such a facility is a large employer, with a highly skilled, productive, and high-wage workforce, and a high level of local purchases to generate macro multiplier effects (Young et al., 1994). Whether or not the government takes an activist role in attracting MNE investment, ensuring that the investment is close to the ideal requires an understanding of the forces that underlie the multinational mode of operation (Mudambi, 1998). In their seminal work, Buckley and Casson (1976) analyze the multinational enterprise (MNE) using the tools of transaction cost economics developed by Coase (1937). Here, the MNE is seen as a form of hierarchical international organization that is put in place when the transaction costs involved with using market operations, typically through exports, become too high. Dunning’s (1980, 1988) eclectic or O-L-I paradigm, under which MNE investment decisions are based on ownership, location and/or internalization advantages, can be seen as a means of fleshing out the transaction costs involved in international activity. In the literature, the role of the government is typically subsumed within the location dimension (Davidson, 1980; Mudambi, 1995; Loree and Guisinger, 1995). Thus,...
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