Multinational Firms and Developmental Trajectories: Strategic Entry and Regulatory Interactions in the Middle-Income Trap Contexts

Although scholars have extensively researched the “middle-income trap” (MIT) concept, but there are still unresolved gaps regarding the interactions of multinational corporation (MNCs) entry mode strategies with host country’s regulatory framework in leveraging middle-income countries (MICs) transitioning to high income status. In the short term, entry modes via greenfield investment (GFI) and cross-border merger & acquisition sales (C-B M&As) shows to have an adverse effect on economic growth and overall productivity of MICs, hindering their effort to escape the MIT. But over time, they appear to boost MICs capability to escape the MIT. Nevertheless, these effects are not complemented by host countries’ regulatory policy, which may likely slow down economic progress, making it difficult in overcoming the MIT. Furthermore, the long-term economic impact of GFI is larger than the impact of C­B M&As, but with a reduced productivity effect compared to C­B M&As.