EconPapers    
Economics at your fingertips  
 

The price of doing business: Why replaceable foreign firms get worse government treatment

Leslie Johns and Rachel L. Wellhausen

Economics and Politics, 2021, vol. 33, issue 2, 209-243

Abstract: We argue that a host government treats foreign firms better if those foreign firms have fewer replacements. We identify a key structural determinant of replaceability: the startup costs that foreign firms must incur to begin production. Since the host government can only take from foreign firms that actually produce in its market, it must treat foreign firms better when their startup costs are high, lest the government drive all foreign firms out. Our theoretical model applies contemporary trade theory to foreign direct investment and provides insights about the understudied relationship between foreign and domestic firms. Most importantly, it endogenizes market entry and exit, establishing the importance of entry despite scholars' long‐time focus on exit. Our analysis uses cross‐national firm‐level data on taxes and production outcomes, and we provide a new industry‐level measure of government treatment of foreign firms.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/ecpo.12172

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ecopol:v:33:y:2021:i:2:p:209-243

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0954-1985

Access Statistics for this article

Economics and Politics is currently edited by Peter Rosendorff

More articles in Economics and Politics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2022-02-19
Handle: RePEc:bla:ecopol:v:33:y:2021:i:2:p:209-243