Trade Policies and FDI with an Endogenous Market Structure

Hsu Chih-Yi (), Hwang Hong (), Lin Yan-Shu () and Peng Cheng-Hau ()
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Hsu Chih-Yi: Department of Economics, National Dong Hwa University, Hualien, Taiwan
Hwang Hong: Department of Economics, National Taiwan University, Taipei, Taiwan
Lin Yan-Shu: Department of Economics, National Dong Hwa University, Hualien, Taiwan
Peng Cheng-Hau: Department of Economics, Fu Jen Catholic University, New Taipei City, Taiwan

The B.E. Journal of Economic Analysis & Policy, 2023, vol. 23, issue 2, 423-442

Abstract: Given an endogenous market structure, this research investigates the effects of tariff and equivalent quota policies on foreign firms’ FDI decisions. Findings show that foreign firms have symmetric (asymmetric) decisions in terms of FDI versus export under a tariff (quota) policy. Furthermore, FDI is more likely to occur under the tariff than the quota regime, but the former is definitely more (less) desirable than the latter in terms of domestic (world) welfare. Finally, a more cost-efficient firm is more likely to engage in FDI under either the tariff or the quota regime.

Keywords: endogenous market structure; FDI; tariff; equivalent quota (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejeap-2022-0240

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