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Tariff Jumping and Joint Ventures

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  • 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)

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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Bibliographic Info

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

Volume (Year): 75 (2009)
Issue (Month): 4 (April)
Pages: 1256-1269

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Handle: RePEc:sej:ancoec:v:75:4:y:2009:p:1256-1269

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Basak, Debasmita & Mukherjee, Arijit, 2014. "Optimal contract under brand name collaboration," Economic Modelling, Elsevier, vol. 37(C), pages 238-240.
  2. Beladi, Hamid & Mukherjee, Arijit, 2012. "Footloose foreign firm and profitable domestic merger," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 186-194.
  3. Tai-Liang Chen & Yuanyuan Ma, 2010. "International joint venture, commitment and host-country policy in an integrated market," International Review of Economics, Springer, vol. 57(4), pages 411-421, December.

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