Foreign Direct Investment and the Political Economy of Protection
This paper makes the point that an import-competing industry may not want maximal protection. The reason is that a high level of protection encourages inward foreign direct investment, which could be even less desirable than import competition. A government captured by the domestic import-competing industry consequently will set the level of protection low enough to limit direct foreign entry. This paper also establishes results regarding the form of protection. Voluntary export restraints are shown to be the domestic industry's desired means of protection, because leaving export rents with foreigners inhibits foreign direct investment. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 40 (1999)
Issue (Month): 2 (May)
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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.:
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- Hillman, Arye L & Ursprung, Heinrich W, 1988. "Domestic Politics, Foreign Interests, and International Trade Policy," American Economic Review, American Economic Association, vol. 78(4), pages 719-745, September.
- Ray, Edward John, 1981. "The Determinants of Tariff and Nontariff Trade Restrictions in the United States," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 105-121, February. Full references (including those not matched with items on IDEAS)
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