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Regional Intergration, Foreign Investment, And Optimal Trade And Investment Policies

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  • Tsai Pan-Long

Abstract

Using an international duopoly model, this paper first investigates the impacts of the formation of a North-South regional intergration (RI) on both the developed member country and the developing nonmember country. The RI is shown indeed to have trade diversion effect and to depress the welfare of the nonmember country. It then derives explicitly the conditions under which the nonmember exporting firm will make FDI into the economic region after its formation. The optimal trade and investment policies of the nonmember country after the RI are shown to be export subsidies no matter there is FDI or not. Moreover, in the case with FDI, the nonmember country should subsidize the export and the FDI of its firms equally. [F21]

Suggested Citation

  • Tsai Pan-Long, 1999. "Regional Intergration, Foreign Investment, And Optimal Trade And Investment Policies," International Economic Journal, Taylor & Francis Journals, vol. 13(1), pages 1-18.
    • Handle: RePEc:taf:intecj:v:13:y:1999:i:1:p:1-18
    DOI: 10.1080/10168739900000025
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    1. Hong Hwang & Chao-Cheng Mai, 1991. "Optimum Discriminatory Tariffs under Oligopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 24(3), pages 693-702, August.
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    3. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 383-406.
    4. Ethier, Wilfred J. & Horn, Henrik, 1990. "Managerial control of international firms and patterns of direct investment," Journal of International Economics, Elsevier, vol. 28(1-2), pages 25-45, February.
    5. Gatsios, Konstantine, 1990. "Preferential tariffs and the 'most favoured nation' principle: A note," Journal of International Economics, Elsevier, vol. 28(3-4), pages 365-373, May.
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    Cited by:

    1. Seiichi Katayama & Sajal Lahiri & Eiichi Tomiura, 2005. "Cost Heterogeneity and the Destination of Foreign Direct Investment," Discussion Paper Series 166, Research Institute for Economics & Business Administration, Kobe University.

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