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Tariff Jumping and Joint Ventures

Listed author(s):
  • Hamid Beladi

    (Department of Economics, College of Business, University of Texas at San Antonio, One UTSA Circle, San Antonio, TX 78249-0633, USA)

  • Sugata Marjit


    (Centre for Studies in Social Sciences, Calcutta 700-094, West Bengal, India)

  • Avik Chakrabarti


    (Department of Economics, 816 Bolton Hall, College of Letters and Science, University of Wisconsin–Milwaukee, P.O. Box 413, Milwaukee, WI 53201, USA)

It is well known that high tariffs tend to induce foreign direct investment (FDI) by encouraging the investors to jump the ‘‘tariff wall.’’ This paper examines the economic interaction among tariffs, FDI, and international joint ventures (IJV). We show that in the presence of a strong local competitor, even if opening a fully owned subsidiary is not profitable to a foreign firm, the foreign firm may still enter the host country market through IJV. However, IJV is not profitable for sufficiently high tariff rates. Hence, we argue that liberal trade policies may attract foreign investments through the formation of joint ventures.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 75 (2009)
Issue (Month): 4 (April)
Pages: 1256-1269

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Handle: RePEc:sej:ancoec:v:75:4:y:2009:p:1256-1269
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