National Income Inequality, Society, and Multinational Enterprises

Abstract

This chapter calls for understanding the perspective of multinational enterprises (MNEs) on international differences in income inequality. The authors set a research agenda on how national differences in income inequality influence MNE expansion strategies. Applying a transaction cost framework, both negative and positive economic outcomes of income inequality, from the MNE's perspective, are identified. Low levels of income inequality may deter foreign investment, as MNEs prefer countries where they incur lower levels of transaction costs arising from interactions with various market and non-market actors. However, the positive effect of income inequality on location attractiveness will likely diminish at higher levels of inequality when benefits are increasingly offset by additional monitoring, bargaining and security costs owing to instability and conflict. The chapter further explores the implications for level of MNE equity applied in the choice of entry mode under different levels of income inequality.