Foreign-owned Capital and Endogenous Tariffs
AbstractDuring the last two decades we simultaneously observed an important increase in investment abroad and a rush towards free-trade worldwide. This paper argues that the former may (partially) help explain the latter. In a model of endogenous determination of trade protection through lobbying, where the government is also concerned by income redistribution among owners of foreign and national factors of production, entry of foreign capital into the host country will most likely reduce the endogenous level of protection. If the elastic - ity of substitution between labour and capital is sufficiently small, we show that protection cannot increase after the entry of foreign capital, regardless of the form of investment abroad (acquisition of existing domestic firms, or entry by foreign firms) or its trade orientation (whether foreign capital enters the export- or import-competing sector).
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 14 (1999)
Issue (Month): ()
endogenous trade policy; foreign-owned firms;
Other versions of this item:
- Olarreaga, Marcelo, 1999. "Foreign-owned capital and endogenous tariffs," Policy Research Working Paper Series 2205, The World Bank.
- Olarreaga, M, 1996. "Foreign-Owned Captial and Endogenous Tariffs," Research Papers by the Department of Economics, University of Geneva 96.17, Département des Sciences Économiques, Université de Genève.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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