Price Undertakings, VERs, and Foreign Direct Investment
We compare the relative effect of a voluntary export restraint (VER) and a price undertaking on foreign firms' incentive to engage in FDI. We emphasize foreign rivalry as a determinant of FDI. We show, in a model that has two foreign firms competing with a home firm in the home country, that a price undertaking induces more FDI than a VER. The home country government, operating under the constraint to protect the home firm, is generally better off settling an antidumping case with a VER than with a price undertaking.
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