Working Papers:
This paper examines the interaction between trade and FDI policies and its implications for trade and FDI patterns and welfare gains from liberalization. The paper extends the standard trade policy model by incorporating FDI flows into the import-competing industry, i.e., investors can access a foreign market by either exporting or FDI. The model predicts that increasing inbound FDI flows will lead the host country to reduce the unilateral tariff. Introducing an endogenous FDI policy, the model finds that tariff and FDI tax are complementary, and in particular, an investment agreement which bans the FDI tax will lead to a unilateral tariff reduction. This policy interaction has three implications. First, FDI liberalization should reinforce trade liberalization, consistent with the historical observation that trade liberalization and FDI liberalization usually co-move over time. Second, a tariff increase, which encourages inbound FDI, will induce an FDI tax increase, which discourages inbound FDI. This offsetting force due to the policy interaction can help explain why the "tariff-jumping" argument lacks empirical evidence. Third, a failure to incorporate this policy interaction will lead to an underestimate of the gains from FDI liberalization and miss a substitution force between tradeliberalization and FDI liberalization.
  • Does Inbound FDI Reduce Trade Protection? Evidence from the US 2000-2012, 2015.
This paper augments the Grossman-Helpman (1994) model with exogenous inbound FDI position to study the impact of inbound FDI on the trade policy of the investment-host country. The new model implies that a domestic industry with a higher share of FDI stock would receive less trade protection. Using industry-level data from the US for 2000-2012, I find that the pattern of trade protection is broadly consistent with the model predictions. In particular, inbound FDI has a significant negative effect on non-tariff barriers and a less significant but still negative effect on tariffs, which is consistent with the fact that tariffs are constrained under WTO framework while governments have more discretion about non-tariff barriers.

Work in Progress:
  • “Cross-border Investment and Cross-border Pollution”, 2017