in a world with full MAI with that it would achieve without MAI. One checks
that country h gains from MAI provided the following condition is met
> °(1 ~ 2βh + °) 4(1 ~ 2βh + °) ´ FM
(12)
μh > ∏FM _ ∏NM 3 _ 2(βι _ °) ´ μh
Observe first that μhFM is always positive: countries can gain from MAI imple-
mentation only if they hold MNEs. Second, note that the cut-off value μhFM
falls with the bargaining power of country h and rises with °.25 This is because
the percentage loss of bargaining power from MAI participation is lower for
high-beta countries and because the impact on rent extraction associated with
higher ° outweighs that on profit repatriation. Hence, in a full MAI equilibrium
(that is realized by Proposition 5 for relatively high values of °) those countries
that are better off compared with a world with no MAI must hold a sn∏'icieιιl
amount of MNE shares and are more likely characterized by a high bargaining
power.
We compare now the welfare of countries in a world with no MAI and in one
where partial MAI is in place. If country h is not joining MAI, it gains if and
only if
, pp _ zʌ βh(1 _ βh) = p PM-Z
(13)
μh > 11 _ z Πpm _ Πnm ´ μh
Again, since p > zby Lemma 3, we see that countries need to hold some MNEs
to gain from MAI implementation. Compared with full MAI, however, μhPM-Z
rises with βh. Now, in fact, we consider a country that does not belong to MAI.
So, it is not losing bargaining power after the implementation of MAI. What
happens instead is a loss of FDI flows due to the fact that h now is an outsider.
So, the loss of rent extraction associated with the loss of FDIs is higher the
higher its bargaining power.
When, instead, country h decides to join a partial MAI, it will gain compared
with a situation in which MAI is not in place whenever
βh(1 _ βh) _ p(βh _ °)(1 _ βh + °) _ PMZ
μh > ∏PM _ ∏NM ´ μh
(14)
From (14) it can be seen that a country might gain from MAI implementation
even if it is not home of MNEs. In fact, as shown in Appendix 6, the threshold
value μhPMZ may in this case be negative. There are two conflicting forces that
shape the value of μhPMZ : these can be seen in the numerator of its expression.
On the one hand, the participation in MAI reduces the bargaining power of
country h, so that, as for μhFM, we need a country holding a larger share of
MNEs the larger is ° to gain from a world with MAI. However, since p > z,
25We see immediately that @Ph = 4-1—2^J ' 4βh22 > 0:
@° (3 2P∣+2°)
18