TY  - JOUR
AU  - Grossman,Gene
AU  - Helpman,Elhanan
TI  - Foreign Investment with Endogenous Protection
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4876
PY  - 1994
Y2  - October 1994
UR  - http://www.nber.org/papers/w4876
L1  - http://www.nber.org/papers/w4876.pdf
N1  - Author contact info:
Gene M. Grossman
International Economics Section
Department of Economics
Princeton University
Princeton, NJ 08544
Tel: 609/258-4823
Fax: 609/258-1374
E-Mail: grossman@princeton.edu

Elhanan Helpman
Department of Economics
Harvard University
1875 Cambridge Street
Cambridge, MA 02138
Tel: 617-495-4690
Fax: 617-495-7730
E-Mail: ehelpman@harvard.edu
AB  - Jagdish Bhagwati coined the phrase quid pro quo foreign investment to describe international investments made in anticipation of host country trade policy and perhaps with the intention of defusing a protectionist threat.  We apply Bhagwati's notion to situations where (i) foreign investment is best described as the (uncoordinated) opening of branch plants by multinational corporations, and (ii) protection is a political response by an incumbent government to offers of policy-contingent campaign contributions by domestic firms.  We examine the determinants of anticipatory foreign investment and study some of its welfare implications.  We also allow for lobbying by workers with sector- specific skills and show how the conflicting interests of these workers and the industrialists are resolved in determining policy toward foreign investment.
ER  -