The political economy of multinational corporations and international relations

This dissertation is an attempt to analyze the impacts of international political conflicts on multinational firms' economic behavior and their political participation decision. It also analyzes the effects of multinational firms' political involvement on the equilibrium of international relations. The uniqueness of this dissertation exists in its focus on the role of multinational corporations in modern international relations. The study is carried out using game theory, equilibrium analysis, public choice analysis, and econometric regressions.;From an industrial organization perspective, chapter two demonstrates that the deterioration of international relations may cause both a domestic firm and a foreign firm which invests in the domestic country to change their competitive pattern. Basically, in a world with political risk, commodity switching cost, and customers' domestic preference regarding the nationality of the commodities consumed, it is shown that as international conflict between the domestic country and the foreign country becomes aggravated, the Nash equilibrium choice for both the domestic firm and the foreign firm which invests in domestic country is to adopt a price discrimination strategy. Even so, the profits for both firms may still drop, and the welfare of the domestic country will consequently be affected.;Recognizing the potentially negative impacts of international political conflict on multinational firms' profitability, it is inevitable for these firms to look for alternative strategies as counteractions. Chapter three examines the effect of multinational corporations' political involvement on international relations from a public choice perspective. The models developed in this chapter help one understand the equilibrium relations between two nations under two different scenarios: democratic vs. democratic scenario and democratic vs. autocratic scenario. The results of the theoretical analysis show that in the democratic vs. democratic scenario, prohibiting MNC's foreign lobbying might cause their lobbying effort to go up domestically. MNCs may also choose political dumping domestically and abroad to influence voters' voting preferences in both countries.;Chapter four studies the behavior of foreign firms which operate in the host country regarding their production decision, tax compliance decision and their political participation decision. It serves as a more specific example to the theory developed in chapter three, since both economic decisions and political decisions of the firms are analyzed simultaneously.;Chapter five employs a multivariate discrete dependent variable regression method to estimate the impact of different economic and political variables on the effectiveness of international sanctions. Empirical results are interpreted with considerations of the theoretical results developed in previous chapters.