Optimal Tariffs with FDI: The Evidence
Recent theoretical work suggests that the presence of foreign direct investment (FDI) lowers a country’s noncooperative Nash tariff. To test this hypothesis, we first adapt the theoretical model formulated by Blanchard (2010) to derive an intuitive, empirically testable equation. This equation is an augmentation of the standard formula equal to the inverse of export supply elasticity. Using constructed estimates of export supply elasticities and measures of FDI, we test this hypothesis with respect to tariffs set by China prior to 2001. We focus on China before its accession into the World Trade Organization (WTO) for two primary reasons: first, China is a recipient of FDI during this time; and second, prior to becoming a WTO member China can be seen as a player in a noncooperative game. We find evidence to suggest that before entering the WTO, China chooses lower tariffs, ceteris paribus, for industries that receive more FDI. This is an important result since having a better understanding of how countries act unilaterally will provide insight into the multilateral cooperative outcome; that is trade negotiations.
|Date of creation:||30 Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Phillip McCalman, 2004. "Protection for Sale and Trade Liberalization: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 81-94, 02.
- Blanchard Emily J, 2007. "Foreign Direct Investment, Endogenous Tariffs, and Preferential Trade Agreements," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-52, November.
- J. Bhagwati & R. Brecher, 1978.
"National Welfare in an Open Economy in the Presence of Foreign Owned Factors of Production,"
224, Massachusetts Institute of Technology (MIT), Department of Economics.
- Bhagwati, Jagdish N. & Brecher, Richard A., 1980. "National welfare in an open economy in the presence of foreign-owned factors of production," Journal of International Economics, Elsevier, vol. 10(1), pages 103-115, February.
- Grossman, Gene M. & Helpman, Elhanan, 1995.
"Trade Wars and Trade Talks,"
3450062, Harvard University Department of Economics.
- Grossman, G.M. & Helpman, E., 1993. "Trade Wars and Trade Talks," Papers 1-93, Tel Aviv.
- Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
- Grossman, G.M. & Helpman, E., 1992. "Trade Wars and Trade Talks," Papers 163, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Elhanan Helpman, 1993. "Trade Wars and Trade Talks," NBER Working Papers 4280, National Bureau of Economic Research, Inc.
- Emily Blanchard & Xenia Matschke, 2010.
"U.S. Multinationals and Preferential Market Access,"
Research Papers in Economics
2010-08, University of Trier, Department of Economics.
- Emily Blanchard & Xenia Matschke, 2012. "U.S. Multinationals and Preferential Market Access," CESifo Working Paper Series 3847, CESifo Group Munich.
- Matschke, Xenia & Blanchard, Emily, 2013. "U.S. Multinationals and Preferential Market Access," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79751, Verein für Socialpolitik / German Economic Association.
- Ellingsen, T. & Wärneryd, K.E., 1993.
"Foreign direct investment and the political economy of protection,"
1993-8, Tilburg University, Center for Economic Research.
- Ellingsen, Tore & Warneryd, Karl, 1999. "Foreign Direct Investment and the Political Economy of Protection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 357-79, May.
- James R. Markusen, 2004.
"Multinational Firms and the Theory of International Trade,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262633078, June.
- Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
- Svetlana Demidova & Andrés Rodríguez-Clare, 2007.
"Trade Policy under Firm-Level Heterogeneity in a Small Economy,"
NBER Working Papers
13688, National Bureau of Economic Research, Inc.
- Demidova, Svetlana & Rodríguez-Clare, Andrés, 2009. "Trade policy under firm-level heterogeneity in a small economy," Journal of International Economics, Elsevier, vol. 78(1), pages 100-112, June.
- 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.
- Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
- 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.
- Christian Broda & Joshua Greenfield & David Weinstein, 2006. "From Groundnuts to Globalization: A Structural Estimate of Trade and Growth," NBER Working Papers 12512, National Bureau of Economic Research, Inc.
- Blonigen, Bruce A & Figlio, David N, 1998. "Voting for Protection: Does Direct Foreign Investment Influence Legislator Behavior?," American Economic Review, American Economic Association, vol. 88(4), pages 1002-14, September.
When requesting a correction, please mention this item's handle: RePEc:ucn:wpaper:201121. 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: (Nicolas Clifton)
If references are entirely missing, you can add them using this form.