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Foreign Investment with Endogenous Protection

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Author Info
Gene Grossman
Elhanan Helpman

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Abstract

Jagdish Bhagwati coined the phrase quid pro quo foreign investment to describe international investments made in anticipation of host country trade policy and perhaps with the intention of defusing a protectionist threat. We apply Bhagwati's notion to situations where (i) foreign investment is best described as the (uncoordinated) opening of branch plants by multinational corporations, and (ii) protection is a political response by an incumbent government to offers of policy-contingent campaign contributions by domestic firms. We examine the determinants of anticipatory foreign investment and study some of its welfare implications. We also allow for lobbying by workers with sector- specific skills and show how the conflicting interests of these workers and the industrialists are resolved in determining policy toward foreign investment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4876.

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Date of creation: Oct 1994
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Handle: RePEc:nbr:nberwo:4876

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

References listed on IDEAS
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.:

  1. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Hillman, Arye L & Ursprung, Heinrich W, 1993. "Multinational Firms, Political Competition, and International Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 347-63, May. [Downloadable!] (restricted)
  3. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Çaglar Özden & Francisco J. Parodi, 2004. "Customs Unions And Foreign Investment: Theory And Evidence From Mercosur’s Auto Industry," Working Papers Central Bank of Chile 282, Central Bank of Chile. [Downloadable!]
  2. Grether, Jean-Marie & de Melo, Jaime & Olarreaga, Marcelo, 1999. "Who determines Mexican trade policy?," Policy Research Working Paper Series 2187, The World Bank. [Downloadable!]
    Other versions:
  3. Ted To, 1996. "Dynamics and Discriminatory Import Policy," International Trade 9602001, EconWPA, revised 28 Nov 1998. [Downloadable!]
    Other versions:
  4. Emily Blanchard, 2006. "Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Lee G. Branstetter & Robert C. Feenstra, 1999. "Trade and Foreign Direct Investment in China: A Political Economy Approach," NBER Working Papers 7100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Bruce A. Blonigen & Robert C. Feenstra, 1996. "Protectionist Threats and Foreign Direct Investment," NBER Working Papers 5475, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Andréa M. Maechler, 2000. "The Politics of Trade Liberalization in the Presence of FDI Incentives," Working Papers 00.09, Swiss National Bank, Study Center Gerzensee. [Downloadable!]
  8. Hamid Beladi & Sugata Marjit & Avik Chakrabarti, . "Tariff Jumping and Joint Ventures," Working Papers 0002, College of Business, University of Texas at San Antonio. [Downloadable!]
    Other versions:
  9. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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