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Protectionist Threats And Foreign Direct Investment

  • Bruce A. Blonigen
  • Robert C. Feenstra

The recent literature on quid pro quo foreign direct investment (FDI) suggests that FDI may be induced by the threat of protection, and further, that FDI may be used as an instrument to defuse a protectionist threat. This paper uses a panel data set of 4-digit SIC level observations of Japanese manufacturing FDI into the United States in the 1980s to explore these hypotheses empirically. We find strong statistical support for the hypothesis that higher threats of protection lead to greater FDI flows, and post-regression simulations find that a rise in the expected probability of protection from five to ten percent means over a 30 percent rise in next-period FDI flows for an average industry. In addition, there is evidence that non-acquisition FDI by the Japanese had success in defusing the threat of an escape clause investigation in future periods.

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Paper provided by California Davis - Department of Economics in its series Department of Economics with number 96-01.

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Handle: RePEc:fth:caldec:96-01
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  3. repec:att:wimass:9413 is not listed on IDEAS
  4. Salvatore, Dominick, 1987. "Import penetration, exchange rates, and protectionism in the United States," Journal of Policy Modeling, Elsevier, vol. 9(1), pages 125-141.
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  8. Gene Grossman & Elhanan Helpman, 1994. "Foreign Investment with Endogenous Protection," NBER Working Papers 4876, National Bureau of Economic Research, Inc.
  9. Bhagwati, Jagdish N. & Brecher, Richard A. & Dinopoulos, Elias & Srinivasan, T. N., 1987. "Quid pro quo foreign investment and welfare : A political-economy-theoretic model," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 127-138, October.
  10. Kogut, Bruce & Chang, Sea Jin, 1991. "Technological Capabilities and Japanese Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 401-13, August.
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  12. Robert Z. Lawrence, 1993. "Japan?s Low Levels of Inward Investment: The Role of Inhibitions on Acquisitions," NBER Chapters, in: Foreign Direct Investment, pages 85-112 National Bureau of Economic Research, Inc.
  13. Robert Staiger & Frank Wolak, 1994. "Measuring Industry Specific Protection: Antidumping in the United States," International Trade 9410004, EconWPA.
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  16. Goldberger, Arthur S, 1972. "Maximum-Likelihood Estimation of Regressions Containing Unobservable Independent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 1-15, February.
  17. Robert Baldwin & Jeffrey Steagall, 1994. "An analysis of ITC decisions in antidumping, countervailing duty and safeguard cases," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(2), pages 290-308, June.
  18. Takacs, Wendy E, 1981. "Pressures for Protectionism: An Empirical Analysis," Economic Inquiry, Western Economic Association International, vol. 19(4), pages 687-93, October.
  19. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
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  23. Robert Z. Lawrence, 1991. "Efficient or Exclusionist: The Import Behavior of Japanese Corporate Groups," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 311-341.
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  25. Kimberly Ann Elliott & Thomas O. Bayard, 1994. "Reciprocity and Retaliation in U.S. Trade Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 78.
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