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Rules of origin and technology spillovers from foreign direct investment under international duopoly

Naoto Jinji () and Yoshihiro Mizoguchi

Japan and the World Economy, 2016, vol. 40, issue C, 47-60

Abstract: Using a simple three-country model of international duopoly, this study analyzes the optimal choice of rules of origin (ROO) in a free trade area/agreement (FTA) when firms from outside the FTA must undertake foreign direct investment (FDI) in FTA countries and conduct part of their production process within the FTA to comply with the ROO. FDI causes spillovers of the superior production technology from a non-FTA firm to its competitor within the FTA, depending on how much of the production process is shifted to the FTA area. In this situation, this study predicts that as the degree of multilateral trade liberalization before formation of the FTA is higher, the optimal ROO tends to be less stringent.

Keywords: Rules of origin; Free trade area/agreement; Foreign direct investment; Technology spillovers; Oligopoly; F12; F15 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Rules of Origin and Technology Spillovers from Foreign Direct Investment under International Duopoly (2015) Downloads
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