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Endogenous protection, foreign direct investment and protection-building trade

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  • Blonigen, Bruce A.
  • Ohno, Yuka

Abstract

We introduce the possibility of foreign direct investment (FDI) in a strategic, oligopolistic setting with endogenous protection and find that a number of unique subgame-perfect equilibria may arise, including a new result we call “protection-building trade.” This phenomenon occurs in our model when foreign firms locating production in the home country try to increase protectionist pressures in the home country (through increased exports) to provide larger barriers against other foreign competitors in future periods. We discuss how the foreign firm behavior surrounding significant U.S. protectionist actions, including the VERs on Japanese automobiles, may be consistent with protection-building trade behavior.
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Suggested Citation

  • Blonigen, Bruce A. & Ohno, Yuka, 1998. "Endogenous protection, foreign direct investment and protection-building trade," Journal of International Economics, Elsevier, vol. 46(2), pages 205-227, December.
  • Handle: RePEc:eee:inecon:v:46:y:1998:i:2:p:205-227
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    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F6 - International Economics - - Economic Impacts of Globalization

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