Presence Of Foreign Direct Investment Research Articles

Who determines Mexican trade policy?

Using a political economy approach, we analyze the pattern of Mexican manufacturing tariff protection during the period of trade policy reforms. Between 1985 and 1990, Mexico experienced both important inflows of foreign direct investment (FDI) and a significant trade liberalization. The approach incorporates the effects of FDI lobbying on tariff formation. Results support the proposed approach in which the presence of FDI has a strong influence on the determination of the pattern of protection. FDI-intensive sectors tended to be ‘over-protected’, though the move towards greater openness was associated with a reduction in the influence of FDI lobbying.

Tariff Reductions in the Presence of Foreign Direct Investment

This paper argues that the welfare effects of trade liberalization in the presence of foreign direct investment obtained under perfect competition cannot be extended to imperfectly competitive markets. In the Heckscher‐Ohlin model, trade liberalization may be paradoxically immiserizing when the traditional welfare‐increasing result is corrected for the change in foreign capital revenue. Under imperfect competition this cannot occur, except under rather implausible assumptions. Indeed, a tariff reduction is expected to increase welfare when the welfare indicator is corrected for the presence of foreign capital, regardless of the type of market structure and the form of competitive rivalry.