International Joint Ventures and Endogenous Protection: A Political-Economy Approach

This paper constructs a model of international joint ventures (JVs) with political-economy considerations as the main motivation. A foreign firm decides whether to undertake full ownership foreign direct investment (FDI), or to form a JV with a home firm, while the home firm lobbies against FDI. It is shown that the level of lobbying is lower in the JV regime than in the FDI regime if the foreign firm transfer sufficiently advanced technology to the home firm through the JV. However, if the foreign firm anticipates future protectionist threats and forms a JV with the home firm beforehand (quid pro quo JV), then the foreign firm’s profit increases and the home firm’s level of lobbying decreas - es.