Why Are Trade Agreements More Attractive In The Presence Of Foreign Direct Investment?
AbstractThis paper argues that interests of nationals (i.e., domestic residents) and owners of home-based foreign capital in the formation of a Trade Agreements (TA) are not antagonistic, except under rather particular assumptions on initial tariffs among potential members. Further, if initial tariffs are endogenously determined through an industrylobbying process, then TA that would have been immiserising in the absence of Foreign Direct Investment (FDI), may be welfare-enhancing in the presence of foreign-owned firms. The rationale is linked to the effect that the entry of FDI has on the pre-TA tariff, through contributions to the incumbent government. These results may help explain recent integration programs between developed and developing countries.
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Bibliographic InfoArticle provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.
Volume (Year): 134 (1998)
Issue (Month): IV (December)
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Other versions of this item:
- Olarreaga, M., 1998. "Why are Trade Agreements More Attractive in the Presence of Foreign Direct Investment?," Papers 97-003, Stanford - Institute for Thoretical Economics.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F15 - International Economics - - Trade - - - Economic Integration
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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