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Foreign Direct Investment and the Political Economy of Protection
Author(s) -
Ellingsen Tore,
Wärneryd Karl
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00019
Subject(s) - foreign direct investment , economic rent , competition (biology) , government (linguistics) , international economics , international trade , business , investment (military) , politics , economics , market economy , law , macroeconomics , ecology , linguistics , philosophy , political science , biology
This paper makes the point that an import‐competing industry may not want maximal protection. The reason is that a high level of protection encourages inward foreign direct investment, which could be even less desirable than import competition. A government captured by the domestic import‐competing industry consequently will set the level of protection low enough to limit direct foreign entry. This paper also establishes results regarding the form of protection. Voluntary export restraints are shown to be the domestic industry's desired means of protection, because leaving export rents with foreigners inhibits foreign direct investment.