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The Complementarity between Endogenous Protection and Direct Foreign Investment

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  • Zhao, Laixun

Abstract

This paper studies the endogenous relationship between direct foreign investment (DFI) and trade restriction. A domestic labor union interested in both employment and wages bargains with a foreign firm and lobbies against foreign imports. By endogeneizing the wage rate and incorporating resource-using lobbying, we show that more DFI results in higher lobbying efforts and lower imports under fairly general conditions, i.e. a reversal of quid pro quo DFI. We also conduct comparative statics analysis on wages and lobbying efforts.

Suggested Citation

  • Zhao, Laixun, 1995. "The Complementarity between Endogenous Protection and Direct Foreign Investment," ビジネス創造センターディスカッション・ペーパー (Discussion papers of the Center for Business Creation) 10252/4186, Otaru University of Commerce.
    • Handle: RePEc:ota:busdis:10252/4186
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    2. Laixun Zhao & Makoto Okamura, 2010. "Competing to Outsource in the South," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 427-442, August.
    3. 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..
    4. Koichi Kagitani, 2003. "Resistance to Trade Liberalization in Unionized Sector," Open Economies Review, Springer, vol. 14(4), pages 419-435, October.
    5. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    6. Louis Jaeck & Sehjeong Kim, 2018. "FDI Deregulation Versus Labor Market Reform: a Political Economy Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(1), pages 73-89, March.

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