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Commercial Policy and Foreign Ownership

Jota Ishikawa, Yoichi Sugita, and Laixun Zhao

RIE(2011)

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In a model of cross-border partial ownership, we have investigated the effects of commercial policies (such as import tariffs, production subsidies, and regulation on the foreign ownership) when exports and FDI coexist.

    If commercial policies facilitate foreign ownership as in the argument for tariff-jumping FDI, then Proposition 6 implies that the increase in foreign ownership will enhance the backfiring effects of tariffs and subsidies on independent domestic firms.

    It would be interesting to explore the case with partial control and/or partial delegation.

    Also, even under Bertrand competition with differentiated goods instead of Cournot competition as adopted here, FDI could generate horizontal market linkages through which tariffs and production subsidies may not benefit locally owned firms.