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Government Policy toward MNEs in the Presence of Foreign Exchange Scarcity

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  • Ram Mudambi

    (University of Buckingham)

Abstract

While there is a large literature on government policy towards MNEs, the effects of output tradability have not been addressed. In this paper the topic is studied in the context of foreign exchange scarcity and shown to be of crucial importance in determining the effects of government policy toward the MNE. The analysis proceeds by considering two alternative specifications of the output good. In the first case, the output is produced solely for domestic consumption. In the second, the good may be either sold domestically or exported. The effects of government policy in these two scenarios are radically different. These results suggest that the tradability of the output good is part of the explanation of the differing policies adopted by various developing countries towards foreign firms.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume19/V19N1P99_108.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 19 (1993)
Issue (Month): 1 (Winter)
Pages: 99-108

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Handle: RePEc:eej:eeconj:v:19:y:1993:i:1:p:99-108

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Keywords: MNE;

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  1. Gene M. Grossman & Henrik Horn, 1987. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," NBER Working Papers 2159, National Bureau of Economic Research, Inc.
  2. Batra, Raveendra N & Ramachandran, Rama, 1980. "Multinational Firms and the Theory of International Trade and Investment," American Economic Review, American Economic Association, vol. 70(3), pages 278-90, June.
  3. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  4. Carl Davidson & Steven J. Matusz & Mordechai E. Kreinin, 1985. "Analysis of Performance Standards for Direct Foreign Investments," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 876-90, November.
  5. Gany, Ira N. & Gangopadhyay, Shubhashis, 1985. "Multinational firms and government policy," Economics Letters, Elsevier, vol. 17(4), pages 395-399.
  6. Greenaway, David, 1987. "The New Theories of Intra-industry Trade," Bulletin of Economic Research, Wiley Blackwell, vol. 39(2), pages 95-120, April.
  7. Clemhout, S & Wan, H Y, Jr, 1970. "Learning-by-Doing and Infant Industry Protection," Review of Economic Studies, Wiley Blackwell, vol. 37(1), pages 33-56, January.
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