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Government Policy toward MNEs in the Presence of Foreign Exchange Scarcity

Author

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  • Ram Mudambi

    (University of Buckingham)

Abstract

While there is a large literature on government policy towards MNEs, the effects of output tradability have not been addressed. In this paper the topic is studied in the context of foreign exchange scarcity and shown to be of crucial importance in determining the effects of government policy toward the MNE. The analysis proceeds by considering two alternative specifications of the output good. In the first case, the output is produced solely for domestic consumption. In the second, the good may be either sold domestically or exported. The effects of government policy in these two scenarios are radically different. These results suggest that the tradability of the output good is part of the explanation of the differing policies adopted by various developing countries towards foreign firms.

Suggested Citation

  • Ram Mudambi, 1993. "Government Policy toward MNEs in the Presence of Foreign Exchange Scarcity," Eastern Economic Journal, Eastern Economic Association, vol. 19(1), pages 99-108, Winter.
  • Handle: RePEc:eej:eeconj:v:19:y:1993:i:1:p:99-108
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume19/V19N1P99_108.pdf
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    References listed on IDEAS

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    1. Gene M. Grossman & Henrik Horn, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 767-787.
    2. S. Clemhout & H. Y. Wan, 1970. "Learning-by-Doing and Infant Industry Protection," Review of Economic Studies, Oxford University Press, vol. 37(1), pages 33-56.
    3. Mark G. Herander & Christopher R. Thomas, 1986. "Export Performance and Export-Import Linkage Requirements," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 591-607.
    4. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Paper 517, Economics Department, Queen's University.
    5. Gany, Ira N. & Gangopadhyay, Shubhashis, 1985. "Multinational firms and government policy," Economics Letters, Elsevier, vol. 17(4), pages 395-399.
    6. Greenaway, David, 1987. "The New Theories of Intra-industry Trade," Bulletin of Economic Research, Wiley Blackwell, vol. 39(2), pages 95-120, April.
    7. Batra, Raveendra N & Ramachandran, Rama, 1980. "Multinational Firms and the Theory of International Trade and Investment," American Economic Review, American Economic Association, vol. 70(3), pages 278-290, June.
    8. Carl Davidson & Steven J. Matusz & Mordechai E. Kreinin, 1985. "Analysis of Performance Standards for Direct Foreign Investments," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 876-890, November.
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    Cited by:

    1. Adugna Lemi & Sisay Asefa, 2009. "Differential Impacts of Economic Volatility and Governance on Manufacturing and Non-Manufacturing Foreign Direct Investments: The Case of US Multinationals in Africa," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 35(3), pages 367-395.

    More about this item

    Keywords

    MNE;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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