Edited by Geoffrey Wood and Mehmet Demirbag
Chapter 7: The Role of Institutions and Multinational Enterprises in Economic Development
Ben L. Kedia, Jack A. Clampit and Nolan T. Gaffney* 7.1 INTRODUCTION Economists have written extensively about the relationship between the institutional frameworks that govern various nations and their respective levels of economic development (e.g., Barro 1996). International business scholars have a rich tradition of examining the link between multinational enterprises (MNEs) and their effect on the standard of living of the populations they invest in (e.g., Kedia et al. 2005). While this MNEoriented literature offers numerous studies that sometimes do explicitly take institutions into account, the inclusion of institutions in this context is often as a control variable rather than as an integral part of a holistic framework exploring the links between institutions, MNEs and levels of economic development in given societies at once (e.g., Borensztein et al. 1998). Drawing on the works of Douglass North and in the spirit of John Dunning, who often urged scholars to integrate institutions and social concerns more fully into our studies, Figure 7.1 illustrates the purpose of this chapter: to synthesize both streams of literature via the development of an integrated framework that explores the rich, interrelated nature of the relationship between institutions, MNEs and levels of economic development around the world. According to the World Bank (WDI 2010), globalization is spurring widespread and rapid economic development, leading to a marked rise in living standards around the world. Their estimates, for example, suggest that the number of people living on $1.25 a day or less has decreased dramatically since the 1980s, falling...
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