Strategic export policy with foreign direct investment and import substitution (vol 62, pg 85, 2000)

The paper examines discretionary and strategic foreign direct investment (F DI) incentives in the export sector relative to a non-interventionist polic y. The analysis is based on a two-country model with both countries seeking to attract FDI. Countries differ in cost levels and in their levels of tar iff protection on intermediate inputs. A shift in the trade policy regime t oward the strategic promotion of exports results in a decrease in FDI alloc ated to the low-cost country when it has a low level of protection on inter mediate inputs, and an increase in Fl)I when it has a high level of protect ion on intermediates inputs. Furthermore, even if FDI increases with export policy activism relative to non-intervention, welfare may be lower. (C) 20 01 Elsevier Science B.V. All rights reserved. JEL classification: O12; F12; F13; F23.