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Centralized decision strategy in ownership investments and export policy

Author

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  • Ku-Chu Tsao
  • Yan-Shu Lin
  • Yen-Ju Lin

Abstract

This research explores the optimal export policy of a domestic industry characterized by numerous multinational enterprises (MNEs) co-existing with cross-border ownership investments in foreign firms and exports to a foreign country. We demonstrate that the optimal export policy depends on whether MNEs make centralized or decentralized decisions in ownership investments. With decentralized decision-making, the optimal export policy can be either a subsidy or a tax, while with centralized decision-making, it is a tax. Furthermore, we examine how the optimal trade policy responds to the optimal strategy of centralized decision-making by MNEs. Our results show that under certain circumstances, the optimal trade policy is an export subsidy, and MNEs prefer to voluntarily relinquish centralized decision-making, even when they have the option to control the production levels of foreign partner firms.

Suggested Citation

  • Ku-Chu Tsao & Yan-Shu Lin & Yen-Ju Lin, 2024. "Centralized decision strategy in ownership investments and export policy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 33(7), pages 1397-1409, October.
    • Handle: RePEc:taf:jitecd:v:33:y:2024:i:7:p:1397-1409
    DOI: 10.1080/09638199.2023.2271083
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