Foreign Investment with Endogenous Protection

Gene Grossman and Elhanan Helpman

No 4876, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F13 F23 (search for similar items in EconPapers)
Date: 1994-10
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Published as in R.Feenstra, G.M.Grossman and D.Irwin(eds.), The Economy of Trade Policy Cambridge: The MIT Press, 1996, pp. 199-223.

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Working Paper: Foreign Investment with Endogenous Protection (1994)
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