Foreign Investment with Endogenous Protection

Gene Grossman and Elhanan Helpman

No 275594, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: Jagdish Bhagwati coined the phrase quid pro quo foreign investment to describe international investments made in anticipation of host country trade policy and perhaps with the intention of defusing a protectionist threat. We apply Bhagwati's notion to situations where (i) foreign investment is best described as the (uncoordinated) opening of branch plants by multinational corporations, and (ii) protection is a political response by an incumbent government to offers of policy-contingent campaign-contributions by domestic firms. We examine the determinants of anticipatory foreign investment and study some of its welfare implications. We also allow for lobbying by workers with sector-specific skills and show how the conflicting interests of these workers and the industrialists are resolved in determining policy toward foreign investment.

Keywords: Financial Economics; International Development (search for similar items in EconPapers)
Pages: 42
Date: 1994-08
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Citations: View citations in EconPapers (17)

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Working Paper: Foreign Investment with Endogenous Protection (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275594

DOI: 10.22004/ag.econ.275594

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