Tariff Reductions in the Presence of Foreign Direct Investment
AbstractThis paper argues that the welfare effects of trade liberalization in the presence of foreign direct investment obtained under perfect competition cannot be extended to imperfectly competitive markets. In the Heckscher-Ohlin model, trade liberalization may be paradoxically immiserizing when the traditional welfare-increasing result is corrected for the change in foreign capital revenue. Under imperfect competition this cannon occur, except under rather implausible assumptions. Indeed, a tariff reduction is expected to increase welfare when the welfare indicator is corrected for the presence of foreign capital, regardless of the type of market structure and the form of competitive rivalry. Copyright 1996 by Blackwell Publishing Ltd.
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Bibliographic InfoPaper provided by Institut d'Economie et Econométrie, Université de Genève in its series Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva with number 95.11.
Length: 42 pages
Date of creation: 1995
Date of revision:
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Other versions of this item:
- Olarreaga, Marcelo, 1996. "Tariff Reductions in the Presence of Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 263-75, October.
- 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
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