Commercial Policy and Foreign Ownership

Foreign multinationals often not only export but also control local firms through FDI. This paper examines the various effects of trade and industrial policies when exports and FDI coexist. We focus on the case in which a foreign firm has full control of a local firm through partial ownership. Cross...

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Bibliographic Details
Published in:Review of international economics 2011-05, Vol.19 (2), p.300-312
Main Authors: Ishikawa, Jota, Sugita, Yoichi, Zhao, Laixun
Format: Article
Language:English
Subjects:
Analysis
Commercial policy
Developing countries
Economic theory
Foreign direct investment
Foreign investment
Foreign ownership
Income redistribution
Multinational corporations
Multinational enterprises
Ownership
Regulation
Studies
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Summary:Foreign multinationals often not only export but also control local firms through FDI. This paper examines the various effects of trade and industrial policies when exports and FDI coexist. We focus on the case in which a foreign firm has full control of a local firm through partial ownership. Cross‐border ownership on the basis of both financial interests and corporate control leads to horizontal market linkages through which tariffs and production subsidies may harm locally owned firms but benefit the foreign firm. Foreign ownership regulation benefits locally owned firms. These results could have strong policy implications for developing countries that attract an increasing share of world FDI.
ISSN:0965-7576
1467-9396
DOI:10.1111/j.1467-9396.2011.00948.x