We construct a two-period model of industry-specific quid pro quo direct foreign investment (DFI) which occurs with the view to increasing the level of a future voluntary export restraint (VER). The wage and the VER are determined through Nash bargaining. Copyright 1992 Blackwell Publishers Ltd..

The paper analyzes the phenomenon of industry-specific direct foreign investment (DFI) which occurs with the view to defusing the threat of future protection by the host country (quid pro quo), under alternative imperfectly competitive market structures. It is established that, even in the...