International joint ventures and endogenous protection a political-economy approach

This paper constructs a model of international joint ventures (JVs) with political-economy considerations as the main motivation. A foreign firm decides whether to undertake full ownership foreign direct investment (FDI), or to form a JV with a home firm, while the home firm lobbies against foreign imports. It is shown that the formation of a JV is the equilibrium under certain conditions. If the foreign firm anticipates future protectionist threats and forms a JV with the home firm beforehand (quid pro quo JV), then the foreign firm's profit increases and the home firm's level of lobby decreases.