Commercial Policy and Foreign Ownership

• Published in: Review of international economics Vol. 19; no. 2; pp. 300 - 312
• Main Authors: Ishikawa, Jota, Sugita, Yoichi, Zhao, Laixun
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01-05-2011; Wiley Blackwell
• Series: Review of International Economics
• Subjects: Analysis; Commercial policy; Developing countries; Economic theory; Foreign direct investment; Foreign investment; Foreign ownership; Income redistribution; Multinational corporations; Multinational enterprises; Ownership; Regulation; Studies
• ISSN: 0965-7576; 1467-9396
• DOI: 10.1111/j.1467-9396.2011.00948.x

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.