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Foreign direct investment and the demand for protection in the United States

Published online by Cambridge University Press:  22 May 2009

John B. Goodman,
Debora Spar and
David B. Yoffie
John B. Goodman
Affiliation:
Deputy Under Secretary of Defense (Industrial Affairs and Installations), U.S. Department of Defense, Washington, D.C.
Debora Spar
Affiliation:
Associate Professor of Business Administration at Harvard Business School, Boston, Massachusetts.
David B. Yoffie
Affiliation:
Professor of Business Administration at Harvard Business School, Boston, Massachusetts.
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Abstract

Over the past decade, foreign direct investment (FDI) in the United States has grown dramatically, changing the composition of many U.S. industries and bringing foreignowned firms into the domestic political process. Presumably, FDI also has affected the politics of protection, by both altering the domestic coalitions around protectionist demands and shifting the potential benefits that protectionism is likely to bring. To understand this process, we create and test a model that examines the level of inward investment and the extent to which this investment either complements or substitutes for existing import levels. Import-complementing investment, we suggest, will cause a split in protectionist demands, with local producers favoring protectionism and foreign investors pushing for free trade. Import-substituting investment, by contrast, will create convergent interests between local and foreign producers. In both cases, inward FDI reshuffles traditional alliances and demands for protection, challenging many prevailing views about protectionism in the United States.

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Articles
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International Organization , Volume 50 , Issue 4 , Autumn 1996, pp. 565 - 591
Copyright
Copyright © The IO Foundation 1996

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