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Tariffs and Foreign Direct Investment in a North South Product Cycle Model

Author

Listed:
  • Tatsuro Iwaisako

    (Graduate School of Economics, Osaka University)

  • Hitoshi Tanaka

    (FacultyofEconomics,Hokkai-GakuenUniversity)

Abstract

This paper theoretically examines how import tariffs by a developed country(theNorth)and a developing country(theSouth)affect innovation,foreign direct investment(FDI),wages,and welfare using a North?South quality ladder model.We show that a Northern import tariff raises the relative wage of Northern labor to Southern labor,but impedes innovation and FDI.Because of the decrease in innovation and increased prices,this may worsen Northern welfare.By contrast,a Southern import tariff raises the relative wage of Southern labor to Northern labor and promotes innovation and FDI. As a result,it can improve Southern welfare.These results imply that the North has a weaker incentive than the South to impose an import tariff,and this is consistent with actual experience.

Suggested Citation

  • Tatsuro Iwaisako & Hitoshi Tanaka, 2020. "Tariffs and Foreign Direct Investment in a North South Product Cycle Model," Discussion Papers in Economics and Business 20-08, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2008
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign directinvestment; innovation; intellectualpropertyrightsprotection;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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