Multinational firms, political competition, and international trade policy

This paper considers how the presence of multinational firms influences international trade policy that is determined as the outcome of political competition. Multinational firms have plants to protect in all policy jurisdictions, and hence are more protectionist than national firms which at least have an interest in free trade in export markets. Because of changed incentives for firms to provide political support for free-trade and protectionist candidates an increased multinational presence via either merger or direct foreign investment has a liberalizing influence on trade policy. Increased multinational presence has a liberalizing influence on the determination of international trade policy - evidently via the incentives for free trade deriving from international vertical integration, and also - perhaps less evidently but as our model demonstrates - when multinational operation takes the form of horizontal integration. -from Authors