Why are trade agreements more attractive in the presence of foreign direct investment?

Marcelo Olarreaga

No ERAD-98-03, WTO Staff Working Papers from World Trade Organization (WTO), Economic Research and Statistics Division

Abstract: This paper argues that interests of nationals and owners of home-based foreign capital in the formation of a Trade Agreements (TA) are not antagonistic, except under rather particular assumptions on initial tariffs among potential members. Further, if initial tariffs are endogenously determined through an industry-lobbying process, then TA that would have been immiserising in the absence of Foreign Direct Investment (FDI), may be welfare-enhancing in the presence of foreign-owned firms. The rationale is linked to the effect that the entry of FDI has on the pre-TA tariff, through contributions to the incumbent government. These results may help explain recent integration programs between developed and developing countries.

Keywords: Trade Agreement; Foreign Direct; Political Economy (search for similar items in EconPapers)
JEL-codes: F12 F15 F23 (search for similar items in EconPapers)
Date: 1998
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Related works:
Journal Article: Why Are Trade Agreements More Attractive In The Presence Of Foreign Direct Investment? (1998)
Working Paper: Why are Trade Agreements More Attractive in the Presence of Foreign Direct Investment? (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wtowps:erad9803

DOI: 10.30875/ede7ca61-en

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