Foreign-owned capital and endogenous tariffs

de M. Olarreaga

The increase in investment abroad during the past two decades may help explain the simultaneous worldwide rush toward free trade. The entry of foreign capital may change the political game, increasing openness to international trade no matter what form the foreign capital takes (whether entering by acquiring equity in existing domestic firms or by bringing foreign firms into the host economy) or what its trade orientation (whether it enters the export or import-competing sector).