Endogenous trade policy under foreign direct investment

Hideo Konishi, Kamal Saggi and Shlomo Weber

Chapter 23 in Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, 2023, pp 523-542 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Using Bernheim and Whinston (1986) common agency game, we endogenize trade policy in a duopoly composed of a domestic firm and a foreign firm, where both firms influence the domestic government’s trade policy via their contributions. The foreign firm can jump over trade restrictions by undertaking foreign direct investment (FDI) in the domestic market. The government prefers a voluntary export restraint (VER) to a tariff for two reasons. First, a VER leads to higher contributions from the foreign firm than a tariff. Second, a VER provides a higher level of protection to the domestic firm without generating FDI by the foreign firm.

Keywords: International Technology Transfer; Multinational Firms; Trips; Foreign Direct Investment; Oligopolistic Competition; Vertical Contracts; Intellectual Property Rights (search for similar items in EconPapers)
JEL-codes: F21 (search for similar items in EconPapers)
Date: 2023
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Journal Article: Endogenous trade policy under foreign direct investment (1999)
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