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Tariff Jumping and Joint Ventures

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Author Info
Hamid Beladi (Department of Economics, College of Business, University of Texas at San Antonio, One UTSA Circle, San Antonio, TX 78249-0633, USA)
Sugata Marjit () (Centre for Studies in Social Sciences, Calcutta 700-094, West Bengal, India)
Avik Chakrabarti () (Department of Economics, 816 Bolton Hall, College of Letters and Science, University of Wisconsin–Milwaukee, P.O. Box 413, Milwaukee, WI 53201, USA)

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Abstract

It is well known that high tariffs tend to induce foreign direct investment (FDI) by encouraging the investors to jump the ‘‘tariff wall.’’ This paper examines the economic interaction among tariffs, FDI, and international joint ventures (IJV). We show that in the presence of a strong local competitor, even if opening a fully owned subsidiary is not profitable to a foreign firm, the foreign firm may still enter the host country market through IJV. However, IJV is not profitable for sufficiently high tariff rates. Hence, we argue that liberal trade policies may attract foreign investments through the formation of joint ventures.

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Publisher Info
Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 75 (2009)
Issue (Month): 4 (April)
Pages: 1256-1269
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:sej:ancoec:v:75:4:y:2009:p:1256-1269

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Find related papers by JEL classification:
F1 - International Economics - - Trade
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
O1 - Economic Development, Technological Change, and Growth - - Economic Development
D2 - Microeconomics - - Production and Organizations
P - Economic Systems

References listed on IDEAS
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  1. Long, Ngo Van & Vousden, Neil, 1995. "The Effects of Trade Liberalization on Cost-Reducing Horizontal Mergers," Review of International Economics, Blackwell Publishing, vol. 3(2), pages 141-55, June.
  2. Gene Grossman & Elhanan Helpman, 1994. "Foreign Investment with Endogenous Protection," NBER Working Papers 4876, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Dinopoulos, E. & Wong, K-Y., 1990. "Quid Pro Quo Foreign Investment And Policy Intervention," Discussion Papers in Economics at the University of Washington 90-14, Department of Economics at the University of Washington.
  4. Marjit, Sugata & Chowdhury, Prabal Roy, 2004. "Asymmetric capacity costs and joint venture buy-outs," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 425-438, July. [Downloadable!] (restricted)
  5. Eicher, Theo & Kang, Jong Woo, 2005. "Trade, foreign direct investment or acquisition: Optimal entry modes for multinationals," Journal of Development Economics, Elsevier, vol. 77(1), pages 207-228, June. [Downloadable!] (restricted)
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  6. Harris, Richard G. & Schmitt, Nicolas, 2001. "Strategic export policy with foreign direct investment and import substitution," Journal of Development Economics, Elsevier, vol. 64(1), pages 293-312, February. [Downloadable!] (restricted)
    Other versions:
  7. Richard Damania, 2003. "Protectionist Lobbying and Strategic Investment," The Economic Record, The Economic Society of Australia, vol. 79(244), pages 57-69, 03. [Downloadable!] (restricted)
  8. Horstmann, Ignatius J & Markusen, James R, 1996. "Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 1-19, February.
    Other versions:
  9. Jones, Ronald W, 1999. "Protectionism, Export Requirements, and Joint Ventures," Review of Development Economics, Blackwell Publishing, vol. 3(3), pages 231-41, October. [Downloadable!] (restricted)
  10. Chakrabarti, Avik, 2003. "A theory of the spatial distribution of foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 12(2), pages 149-169. [Downloadable!] (restricted)
  11. Yu, Eden S. H. & Chi-Chur, Chao, 1996. "Are wholly foreign-owned enterprises better than joint ventures?," Journal of International Economics, Elsevier, vol. 40(1-2), pages 225-237, February. [Downloadable!] (restricted)
  12. Falvey, Rodney E. & Harold O. Fried, 1986. "National ownership requirements and transfer pricing," Journal of Development Economics, Elsevier, vol. 24(2), pages 249-254, December. [Downloadable!] (restricted)
  13. Satya P. Das & Seiichi Katayama, 2003. "International Joint Venture And Host-Country Policies," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 381-394. [Downloadable!] (restricted)
  14. Mukherjee, Arijit & Sengupta, Sarbajit, 2001. "Joint Ventures versus Fully Owned Subsidiaries: Multinational Strategies in Liberalizing Economies," Review of International Economics, Blackwell Publishing, vol. 9(1), pages 163-80, February. [Downloadable!] (restricted)
  15. Neary, J Peter, 2002. "Foreign Direct Investment and the Single Market," Manchester School, University of Manchester, vol. 70(3), pages 291-314, June. [Downloadable!] (restricted)
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  16. Chao, Chi-Chur & Yu, Eden S H, 2000. "Domestic Equity Controls of Multinational Enterprises," Manchester School, University of Manchester, vol. 68(3), pages 321-30, June. [Downloadable!] (restricted)
  17. repec:pal:jintbs:v:36:y:2005:i:2:p:175-186 is not listed on IDEAS
  18. Marjit, Sugata & Broll, Udo & Mallick, Indrajit, 1995. "A theory of overseas joint ventures," Economics Letters, Elsevier, vol. 47(3-4), pages 367-370, March. [Downloadable!] (restricted)
  19. Ping Lin & Kamal Saggi, 2004. "Ownership Structure and Technological Upgrading in International Joint Ventures," Review of Development Economics, Blackwell Publishing, vol. 8(2), pages 279-294, 05. [Downloadable!] (restricted)
  20. Smith, Alasdair, 1987. "Strategic investment, multinational corporations and trade policy," European Economic Review, Elsevier, vol. 31(1-2), pages 89-96. [Downloadable!] (restricted)
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