A political economy theory of foreign investment: An alternative approach

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3 Citations (Scopus)

Abstract

The present paper uses the political economy model developed by Grossman and Helpman and studies the equilibrium of a game between the two countries; the home country, which exercises the trade policy for maximizing its objective function, and the foreign country, which controls the level of its capital export for the similar purpose. It is shown that if the production costs of the two countries are identical, the equilibrium of the game in which the two countries make simultaneous move will very likely achieve free trade.

Original languageEnglish
Pages (from-to)515-531
Number of pages17
JournalJapan and The World Economy
Volume9
Issue number4
Publication statusPublished - 1997 Dec 1

Keywords

  • Foreign direct investment
  • Political economy
  • Trade policy

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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