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Rules of Origin and Technology Spillovers from Foreign Direct Investment under International Duopoly

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  • Naoto Jinji
  • Yoshihiro Mizoguchi

Abstract

Using a simple three-country model of international duopoly, this study analyses the optimal choice of rules of origin (ROO) in a free trade area/agreement (FTA) when firms from outside the FTA must undertake foreign direct investment (FDI) in FTA countries and conduct part of their production process within the FTA to comply with the ROO. FDI causes spillovers of the superior production technology from a non-FTA firm to its competitor within the FTA, depending on how much of the production process is shifted to the FTA area. In this situation, we show that as the degree of multilateral trade liberalisation before formation of the FTA is higher, the optimal ROO tends to be less stringent.

Suggested Citation

  • Naoto Jinji & Yoshihiro Mizoguchi, 2015. "Rules of Origin and Technology Spillovers from Foreign Direct Investment under International Duopoly," Discussion papers e-15-012, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-15-012
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    Cited by:

    1. Hiroshi Mukunoki & Hirofumi Okoshi, 2021. "Rules of origin and consumer‐hurting free trade agreements," The World Economy, Wiley Blackwell, vol. 44(8), pages 2303-2318, August.

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    More about this item

    Keywords

    rules of origin; free trade area/agreement; foreign direct investment; technology spillovers; oligopoly;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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