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The Complementarity Between Endogenous Protection And Direct Foreign Investment

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  • Laixun Zhao

Abstract

This paper studies the endogenous relationship between direct foreign investgment (DFI) and trade restriction. A domestic labor union interested in both employment and wages bargains with a foreign firm and lobbies against foreign imports. By endogeneizing the wage rate and incorporating resource‐using lobbying, we show that more DFI results in higher lobbying efforts and lower imports under fairly general conditions, i.e. a reversal of quid pro quo DFI. We also conduct comparative statics analysis on wages and lobbying efforts.

Suggested Citation

  • Laixun Zhao, 1996. "The Complementarity Between Endogenous Protection And Direct Foreign Investment," Economics and Politics, Wiley Blackwell, vol. 8(1), pages 61-72, March.
    • Handle: RePEc:bla:ecopol:v:8:y:1996:i:1:p:61-72
    DOI: 10.1111/j.1468-0343.1996.tb00121.x
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    Cited by:

    1. Laixun Zhao & Makoto Okamura, 2010. "Competing to Outsource in the South," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 427-442, August.
    2. Bruce A. Blonigen & Yuka Ohno, 2019. "Endogenous Protection, Foreign Direct Investment and Protection-building Trade," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 6, pages 205-233, World Scientific Publishing Co. Pte. Ltd..
    3. Koichi Kagitani, 2003. "Resistance to Trade Liberalization in Unionized Sector," Open Economies Review, Springer, vol. 14(4), pages 419-435, October.
    4. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    5. Louis Jaeck & Sehjeong Kim, 2018. "FDI Deregulation Versus Labor Market Reform: a Political Economy Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(1), pages 73-89, March.

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