FOREIGN DIRECT INVESTMENT FOR‘TARIFF JUMPING’

Abstract

Brander and Spencer (1984a) showed the new aspect of the tariff policy in the imperfectly competitive market (rent shifting). This paper examines how welfare is affected and the policy fails when the direct investment is induced by that tariff policy. It is shown, among other things, that (a) welfare of the host country is lowered even compared to the free trade regime when entry is restricted, that (b) with free entry of firms, welfare of the host country is enhanced compared to the free trade regime, and that (c) if the traiff war occurs, welfare of the both countries are always lowered compared to any regimes.