Foreign-Owned Captial and Endogenous Tariffs

In an endogenous tariff setting, the entry of foreign-owned capital has ambiguous effects on the level of protection. In the presence of trade-promoting and trade-neutral foreign capital, lobbying pressures for a higher tariff are lower whereas if foreign capital is trade-substituting, conflicting interests may result into higher or lower lobbying pressures for tariffs. Arguments for a tariff, based on social welfare grouds, are smaller if foreign-owned capital is trade- neutral.