Trade versus Direct Investment: Modal Neutrality and National Treatment
AbstractInternational agreements increasingly constrain the ability of governments to use trade policies whereas few constraints apply to the use of investment policies. Using a model in which a local and a foreign firm compete in the domestic market, we analyse whether the foreign firm may be forced to adopt an inefficient mode of supply (exports versus FDI) when the domestic government is constrained in its ability to use trade policy, but is free to set its FDI policy. We find that the foreign firm chooses the efficient mode of supply, even under a discriminatory output tax levied on FDI. This result suggests that the case for multilateral investment rules on efficiency grounds needs careful evaluation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3375.
Date of creation: May 2002
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James A. Brander, 1995.
"Strategic Trade Policy,"
NBER Working Papers
5020, National Bureau of Economic Research, Inc.
- Hoekman, Bernard & Saggi, Kamal, 2000. "Assessing the Case for Extending WTO Disciplines on Investment-Related Policies," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 629-653.
- Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
- Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
- Konishi, Hideo & Saggi, Kamal & Weber, Shlomo, 1999. "Endogenous trade policy under foreign direct investment," Journal of International Economics, Elsevier, vol. 49(2), pages 289-308, December.
- Norbäck, Pehr-Johan & Persson, Lars, 2003.
"Privatization Policy in an International Oligopoly,"
Working Paper Series
608, Research Institute of Industrial Economics.
- Pehr-Johan Norbäck & Lars Persson, 2005. "Privatization Policy in an International Oligopoly," Economica, London School of Economics and Political Science, vol. 72(288), pages 635-653, November.
- Johdo, Wataru & Hashimoto, Ken-ichi, 2005. "International relocation, the real exchange rate and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 29(8), pages 1449-1469, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.