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Endogenous Protection, Foreign Direct Investment and Protection-building Trade

In: Foreign Direct Investment

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  • Bruce A. Blonigen
  • Yuka Ohno

Abstract

We introduce the possibility of foreign direct investment (FDI) in a strategic, oligopolistic setting with endogenous protection and find that a number of unique subgame-perfect equilibria may arise, including a new result we call “protection-building trade.” This phenomenon occurs in our model when foreign firms locating production in the home country try to increase protectionist pressures in the home country (through increased exports) to provide larger barriers against other foreign competitors in future periods. We discuss how the foreign firm behavior surrounding significant U.S. protectionist actions, including the VERs on Japanese automobiles, may be consistent with protection-building trade behavior.

Suggested Citation

  • 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..
  • Handle: RePEc:wsi:wschap:9789813277014_0006
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    More about this item

    Keywords

    Foreign Direct Investment; Multinational Enterprises; Mergers and Acquisitions; Greenfield; Trade Policy; Taxation; Spillovers; Offshoring; Wage Inequality; Firm-Specific Assets; Antidumping; Tariff-jumping; Industrial Organization; Ownership-Location-Internalization Theory;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F6 - International Economics - - Economic Impacts of Globalization

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