The Complementarity between Endogenous Protection and Direct Foreign Investment

This paper studies the endogenous relationship between direct foreign　investment (DFI) and trade restriction. A domestic labor union interested in both employment and wages bargains with a foreign firm and lobbies against foreign imports. By endogeneizing the wage rate and incorporating resource-using lobbying, we show that more DFI results in higher lobbying efforts and lower imports under fairly general conditions, i.e. a reversal of quid pro quo DFI. We also conduct comparative statics analysis on wages and lobbying efforts.