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 that at least have an interest in free trade in export markets. Nonetheless, 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.