Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25780
Authors: 
Blanchard, Emily J.
Year of Publication: 
2006
Series/Report no.: 
CESifo working paper 1735
Abstract: 
This paper demonstrates that international ownership can mitigate the terms of trade externalities that lead large countries to set inefficiently high tariffs, and may thereby substitute for negotiated tariff liberalization in eliminating the strategic manipulation of world prices. The policy prediction is unclear, however, since international cross-ownership also introduces an internal cost-shifting externality that can drive investment-host countries to expand local market access beyond efficient levels in an effort to extract rents from foreign investors. An immediate implication is that simply making large countries “act small” or completely diversify their global investment portfolios to neutralize traditionally understood terms of trade cost-shifting motives cannot ensure efficient trade policy regimes in an environment with international investment. At the same time, a modified version of the principle of reciprocity does continue to serve as an important guide to efficiency by balancing countries' external and internal pecuniary externalities.
JEL: 
F01
F13
F15
F21
Document Type: 
Working Paper

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