For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments

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

^μh > ∏FM _ ∏NM    3 _ 2(β_ι _ °) ´ ^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

, p^{p _ z}ʌ ^βh(^{1 _ β}h)  ₌ p PM-Z

^μh > 11 _ z Π^pm _ Π^nm ´ ^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, μ_h^PM-Z
rises with β_h. 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 _ β}h) ^{_ p}(^βh ^_ °)(^{1 _ β}h ⁺ °) _ PMZ
^μh >        ∏PM _ ∏NM        ´ ^μh

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 μ_h^PMZ may in this case be negative. There are two conflicting forces that
shape the value of μ_h^PMZ : 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 μ_h^FM, 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 ' 4^βh₂₂ > 0:
@°        (3 ²P∣⁺2°)

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