IDEAS home Printed from https://ideas.repec.org/p/kue/epaper/e-15-012.html
   My bibliography  Save this paper

Rules of Origin and Technology Spillovers from Foreign Direct Investment under International Duopoly

Author

Listed:
  • Naoto Jinji
  • Yoshihiro Mizoguchi

Abstract

Using a simple three-country model of international duopoly, this study analyses the optimal choice of rules of origin (ROO) in a free trade area/agreement (FTA) when firms from outside the FTA must undertake foreign direct investment (FDI) in FTA countries and conduct part of their production process within the FTA to comply with the ROO. FDI causes spillovers of the superior production technology from a non-FTA firm to its competitor within the FTA, depending on how much of the production process is shifted to the FTA area. In this situation, we show that as the degree of multilateral trade liberalisation before formation of the FTA is higher, the optimal ROO tends to be less stringent.

Suggested Citation

  • Naoto Jinji & Yoshihiro Mizoguchi, 2015. "Rules of Origin and Technology Spillovers from Foreign Direct Investment under International Duopoly," Discussion papers e-15-012, Graduate School of Economics , Kyoto University.
  • Handle: RePEc:kue:epaper:e-15-012
    as

    Download full text from publisher

    File URL: http://www.econ.kyoto-u.ac.jp/dp/papers/e-15-012.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2007. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 482-496, August.
    2. Hisayuki Okamoto & Chisato Yoshida, 1994. "Cournot competition, intra-industry trade, and nonconstancy of marginal costs: A three-country case," Journal of Economics, Springer, vol. 60(2), pages 155-176, June.
    3. Naoto Jinji & Yoshihiro Mizoguchi, 2016. "Optimal Rules of Origin with Asymmetric Compliance Costs under International Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 16(1), pages 1-24, March.
    4. Yang-Ming Chang & Renfeng Xiao, 2013. "Free trade areas, the limit of Rules of Origin, and optimal tariff reductions under international oligopoly: A welfare analysis," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(5), pages 694-728, August.
    5. Zhang, Anming & Zhang, Yimin, 1998. "An analysis of import protection as export promotion under economies of scale," Japan and the World Economy, Elsevier, vol. 10(2), pages 199-219, April.
    6. Shoji Haruna & Rajeev K. Goel, 2015. "R&D Strategy in International Mixed Duopoly with Research Spillovers," Australian Economic Papers, Wiley Blackwell, vol. 54(2), pages 88-103, June.
    7. Wolfgang Keller & Stephen R. Yeaple, 2009. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 821-831, November.
    8. MUKONOKI Hiroshi, 2013. "On the Welfare Effect of FTAs in the Presence of FDIs and Rules of Origin," Discussion papers 13053, Research Institute of Economy, Trade and Industry (RIETI).
    9. Kala Krishna & Anne Krueger, 1995. "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," NBER Working Papers 4983, National Bureau of Economic Research, Inc.
    10. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    11. Wolfgang Keller, 2004. "International Technology Diffusion," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 752-782, September.
    12. Qiu, Larry D. & Tao, Zhigang, 2001. "Export, foreign direct investment, and local content requirement," Journal of Development Economics, Elsevier, vol. 66(1), pages 101-125, October.
    13. Lopez-de-Silanes, Florencio & Markusen, James R. & Rutherford, Thomas F., 1996. "Trade policy subtleties with multinational firms," European Economic Review, Elsevier, vol. 40(8), pages 1605-1627, November.
    14. Jota Ishikawa & Tomohiro Kuroda, 2007. "How Effective are Emissions Taxes in an Open Economy?," Review of Development Economics, Wiley Blackwell, vol. 11(2), pages 359-368, May.
    15. Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-457, March.
    16. Rod Falvey & Geoff Reed, 2002. "Rules of Origin as Commercial Policy Instruments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 393-408, May.
    17. Sajal Lahiri & Yoshiyasu Ono, 2003. "Export-Oriented Foreign Direct Investment and Local Content Requirement," Pacific Economic Review, Wiley Blackwell, vol. 8(1), pages 1-14, January.
    18. Kazuhiro Takauchi, 2011. "Rules of origin and international R&D rivalry," Economics Bulletin, AccessEcon, vol. 31(3), pages 2319-2332.
    19. Jota Ishikawa & Hiroshi Mukunoki, 2008. "Effects of Multilateral Trade Liberalization on Prices," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 37-44, February.
    20. Kazuhiro Takauchi, 2014. "Rules of Origin and Strategic Choice of Compliance," Journal of Industry, Competition and Trade, Springer, vol. 14(2), pages 287-302, June.
    21. Jota Ishikawa & Hiroshi Mukunoki & Yoshihiro Mizoguchi, 2007. "Economic Integration And Rules Of Origin Under International Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 185-210, February.
    22. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
    23. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    24. Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
    25. Carl Davidson & Steven J. Matusz & Mordechai E. Kreinin, 1985. "Analysis of Performance Standards for Direct Foreign Investments," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 876-890, November.
    26. Kala Krishna & Motoshige Itoh, 1988. "Content Protection and Oligopolistic Interactions," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 107-125.
    27. Gene M. Grossman, 1981. "The Theory of Domestic Content Protection and Content Preference," The Quarterly Journal of Economics, Oxford University Press, vol. 96(4), pages 583-603.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    rules of origin; free trade area/agreement; foreign direct investment; technology spillovers; oligopoly;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kue:epaper:e-15-012. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Graduate School of Economics Project Center). General contact details of provider: http://edirc.repec.org/data/fekyojp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.