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Foreign direct investment and the political economy of protection

Author

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  • Ellingsen, T.
  • Wärneryd, K.E.

    (Tilburg University, Center For Economic Research)

Abstract

This paper makes the point that an import-competing industry may not want maximal protection. The reason is that a high level of protection encourages inward foreign direct investment, which could be even less desirable than import competition. A government captured by the domestic import-competing industry consequently will set the level of protection low enough to limit direct foreign entry. This paper also establishes results regarding the form of protection. Voluntary export restraints are shown to be the domestic industry's desired means of protection, because leaving export rents with foreigners inhibits foreign direct investment. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Suggested Citation

  • Ellingsen, T. & Wärneryd, K.E., 1993. "Foreign direct investment and the political economy of protection," Discussion Paper 1993-8, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:4fb47265-bd68-4322-83b0-b40829b21c28
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    References listed on IDEAS

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    1. Richard E. Caves, 1976. "Economic Models of Political Choice: Canada's Tariff Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 9(2), pages 278-300, May.
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    3. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-1187, December.
    4. Cassing, James H. & Hillman, Arye L., 1985. "Political influence motives and the choice between tariffs and quotas," Journal of International Economics, Elsevier, vol. 19(3-4), pages 279-290, November.
    5. Ray, Edward John, 1981. "The Determinants of Tariff and Nontariff Trade Restrictions in the United States," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 105-121, February.
    6. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
    7. Levinsohn, James A., 1989. "Strategic trade policy when firms can invest abroad: When are tariffs and quotas equivalent?," Journal of International Economics, Elsevier, vol. 27(1-2), pages 129-146, August.
    8. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-122, February.
    9. Hillman, Arye L & Ursprung, Heinrich W, 1988. "Domestic Politics, Foreign Interests, and International Trade Policy," American Economic Review, American Economic Association, vol. 78(4), pages 719-745, September.
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    Citations

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    Cited by:

    1. Ronald Davies & Lourenço Paz, 2011. "Tariffs versus VAT in the presence of heterogeneous firms and an informal sector," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(5), pages 533-554, October.
    2. Matthew T. Cole & Ronald B. Davies, 2009. "Optimal tariffs, tariff jumping, and heterogeneous firms," Working Papers 200919, School of Economics, University College Dublin.
    3. Pehr-Johan Norbäck & Lars Persson, 2005. "Privatization Policy in an International Oligopoly," Economica, London School of Economics and Political Science, vol. 72(288), pages 635-653, November.
    4. 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.
    5. Olarreaga, Marcelo, 1999. "Foreign-owned Capital and Endogenous Tariffs," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 14, pages 606-624.
    6. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    7. Palokangas, Tapio K., 2003. "Foreign Direct Investment, Labour Market Regulation and Self-Interested Governments," IZA Discussion Papers 793, Institute for the Study of Labor (IZA).
    8. Florence Eid, 2003. "Foreign Direct Investment in The Arab World: Creating The Missing Link," Working Papers 0309, Economic Research Forum, revised 03 2003.
    9. Andréa M. Maechler, 2000. "The Politics of Trade Liberalization in the Presence of FDI Incentives," Working Papers 00.09, Swiss National Bank, Study Center Gerzensee.
    10. Tadashi Morita & Kouki Sugawara, 2015. "Human capital and FDI: Development process of the developing country in an overlapping generation model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(7), pages 922-946, October.
    11. Cole, Matthew T. & Davies, Ronald B., 2011. "Strategic tariffs, tariff jumping, and heterogeneous firms," European Economic Review, Elsevier, vol. 55(4), pages 480-496, May.
    12. Yasukazu Ichino, 2013. "Antidumping Petition, Foreign Direct Investment, and Strategic Exports," Research in World Economy, Research in World Economy, Sciedu Press, vol. 4(1), pages 22-34, March.
    13. Bruce A. Blonigen & Matthew T. Cole, 2011. "Optimal tariffs with FDI : the evidence," Working Papers 201121, School of Economics, University College Dublin.
    14. Blonigen, Bruce A., 2002. "Tariff-jumping antidumping duties," Journal of International Economics, Elsevier, vol. 57(1), pages 31-49, June.
    15. Andreas Polk, 2002. "Lobbying Activities of Multinational Firms," SOI - Working Papers 0205, Socioeconomic Institute - University of Zurich, revised Jun 2002.
    16. Henk Kox & Arjan Lejour & Raymond Montizaan, 2004. "The free movement of services within the EU," CPB Document 69, CPB Netherlands Bureau for Economic Policy Analysis.

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    Keywords

    Trade Barriers; Foreign Investment;

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