How Large is the Domestic Footprint of MNCs?

The answer is "not much." There's a very interesting thing going on worldwide as Western stock indices hit all-new highs week after week while their local economies suffer from stagnation. The archetypal example, of course, is the American joke/con-omy (its performance is laughable and is buoyed by dubious, unsustainable factors like falling incomes) which shrunk 1% in the first quarter of 2014. America #1, baby! How is it possible that the US economy is going nowhere fast but US-headquartered firms' equity valuations are zooming ever higher? Surely this is a classic case of Greenspan's "irrational exuberance"? Well, not necessarily, and the reasons why are relatively straightforward.

The Economist has an interesting feature on how (mostly) Western multinational corporations derive an ever-smaller share of their revenues at home, while their headcounts and shareholders head in a similar direction. Of course you can use stock valuation methods such as price-earnings ratios, dividend discount models and what else have you to derive how much these stocks are worth, but the important thing to keep in mind is that a lot of MNC earnings will increasingly come abroad. So their home economies may go nowhere fast--think of North America, Western Europe and Japan--but their revenues may be unaffected or likely even grow as most gains come from international operations in developing countries and the like.

It's interesting stuff, and I'll have more on how MNCs hardly act in the national interest as most IPE scholars believe. While these MNCs may successfully lobby their home governments for economic and trade favors, governments do not have the same sway over MNCs.