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The Complementarity Between Endogenous Protection And Direct Foreign Investment

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  • Laixun Zhao

Abstract

This paper studies the endogenous relationship between direct foreign investgment (DFI) and trade restriction. A domestic labor union interested in both employment and wages bargains with a foreign firm and lobbies against foreign imports. By endogeneizing the wage rate and incorporating resource‐using lobbying, we show that more DFI results in higher lobbying efforts and lower imports under fairly general conditions, i.e. a reversal of quid pro quo DFI. We also conduct comparative statics analysis on wages and lobbying efforts.

Suggested Citation

  • Laixun Zhao, 1996. "The Complementarity Between Endogenous Protection And Direct Foreign Investment," Economics and Politics, Wiley Blackwell, vol. 8(1), pages 61-72, March.
    • Handle: RePEc:bla:ecopol:v:8:y:1996:i:1:p:61-72
    DOI: 10.1111/j.1468-0343.1996.tb00121.x
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    References listed on IDEAS

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    1. Douglas Nelson, 1996. "The Political Economy of U.S. Automobile Protection," NBER Chapters, in: The Political Economy of American Trade Policy, pages 133-196, National Bureau of Economic Research, Inc.
    2. Mezzetti, Claudio & Dinopoulos, Elias, 1991. "Domestic unionization and import competition," Journal of International Economics, Elsevier, vol. 31(1-2), pages 79-100, August.
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    4. Grossman, Gene M. & Helpman, Elhanan, 1994. "Foreign Investment with Endogenous Protection," Foerder Institute for Economic Research Working Papers 275594, Tel-Aviv University > Foerder Institute for Economic Research.
    5. Brander, James A. & Spencer, Barbara J., 1988. "Unionized oligopoly and international trade policy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 217-234, May.
    6. Kar‐yiu Wong, 1989. "Optimal Threat Of Trade Restriction And Quid Pro Quo Foreign Investment," Economics and Politics, Wiley Blackwell, vol. 1(3), pages 277-300, November.
    7. Brock, William A & Magee, Stephen P, 1978. "The Economics of Special Interest Politics: The Case of the Tariff," American Economic Review, American Economic Association, vol. 68(2), pages 246-250, May.
    8. Elias Dinopoulos, 1989. "Quid Pro Quo Foreign Investment," Economics and Politics, Wiley Blackwell, vol. 1(2), pages 145-160, July.
    9. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
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    14. repec:bla:scandj:v:87:y:1985:i:2:p:160-93 is not listed on IDEAS
    15. Bhagwati, Jagdish N. & Brecher, Richard A. & Dinopoulos, Elias & Srinivasan, T. N., 1987. "Quid pro quo foreign investment and welfare : A political-economy-theoretic model," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 127-138, October.
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    18. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    19. Zhao, Laixun, 1995. "Cross-hauling direct foreign investment and unionized oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1237-1253, June.
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    Cited by:

    1. Koichi Kagitani, 2003. "Resistance to Trade Liberalization in Unionized Sector," Open Economies Review, Springer, vol. 14(4), pages 419-435, October.
    2. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    3. Bruce A. Blonigen & Yuka Ohno, 2019. "Endogenous Protection, Foreign Direct Investment and Protection-building Trade," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 6, pages 205-233, World Scientific Publishing Co. Pte. Ltd..
    4. Louis Jaeck & Sehjeong Kim, 2018. "FDI Deregulation Versus Labor Market Reform: a Political Economy Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(1), pages 73-89, March.
    5. Laixun Zhao & Makoto Okamura, 2010. "Competing to Outsource in the South," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 427-442, August.

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