Who gets what: the MNE, the national state and the distributional effects of globalization

Globalization is the outcome of the interface between national states and MNEs. It is a negotiated solution rather than perfect market equilibrium. Even in a global liberalized world, national states are trying to generate as much welfare for their residents as they can, while MNEs try to maximize their value. This creates a bargaining situation. A stylized game theory model is presented and discussed, in order to gain insights into the income distributional effects of the globalization process. Two important features of the model are: (a) that there is a need for a carefully spelt out strategy, and (b) that optimal solutions depend on an ability to identify the elements of the bargaining where the opportunity cost is low. A case study of the negotiation between the State of Israel and Intel is presented as an illustration for this general model.