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Price Undertakings, VERs, and Foreign Direct Investment

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  • Jota Ishikawa
  • Kaz Miyagiwa

Abstract

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.

Suggested Citation

  • Jota Ishikawa & Kaz Miyagiwa, 2006. "Price Undertakings, VERs, and Foreign Direct Investment," Emory Economics 0616, Department of Economics, Emory University (Atlanta).
  • Handle: RePEc:emo:wp2003:0616
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    References listed on IDEAS

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    1. Bruce Blonigen & KaSaundra Tomlin & Wesley Wilson, 2004. "Tariff-jumping FDI and domestic firms' profits," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 656-677, August.
    2. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
    3. Belderbos, R. & Vandenbussche, H. & Veugelers, R., 2004. "Antidumping duties, undertakings, and foreign direct investment in the EU," European Economic Review, Elsevier, vol. 48(2), pages 429-453, April.
    4. Thomas J. Prusa, 2001. "On the spread and impact of anti-dumping," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 591-611, August.
    5. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
    6. Ishikawa, Jota, 1998. "Who Benefits from Voluntary Export Restraints?," Review of International Economics, Wiley Blackwell, vol. 6(1), pages 129-141, February.
    7. Michael O. Moore, 2005. "VERs and Price Undertakings under the WTO," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 298-310, May.
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