Trade-Related Investment Measures: Theory And Applications

336 Pages·2014·5.239 MB·English

by  Chi-Chur Chao

09:27:13.
TRADE
-RELATED
INVESTMENT
MEASURES
Theory and Applications

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TRADE
-RELATED
INVESTMENT
MEASURES
Theory and Applications
Chi-Chur Chao
Deakin University, Australia
Eden S. H. Yu

Chu Hai College of Higher Education, Hong Kong
Imperial College Press
ICP
P946_9781783264780_tp.indd 2 27/5/14 4:32 pm
Published by
Imperial College Press
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Distributed by
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Library of Congress Cataloging-in-Publication Data
Chao, Chi-Chur.
Trade-related investment measures : theory and applications / Chi-Chur Chao, Deakin University,
Australia, Eden S. H. Yu, Chu Hai College of Higher Education, Hong Kong.
pages cm
Includes bibliographical references and index.
ISBN 978-1-78326-478-0 (hardcover : alk. paper)
1. Investments, Foreign--China. 2. China--Commercial policy. 3. China--Foreign economic
relations. 4. International trade. I. Yu, Eden Siu-hung. II. Title.
HG5782.C4312 2014
332.67'30951--dc23

2014019014
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Copyright © 2014 by Imperial College Press
All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means,
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Typeset by Stallion Press
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Printed in Singapore
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Contents
Preface xi
Acknowledgments xiii
Introduction xvii
Part I On Investment Measures, Trade,
and the Environment 1
1. On Investment Measures and Trade 3
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 TRIMs, Resource Allocation, and Welfare . . . . . . . . . 5
1.3 TRIMs and Other Objectives . . . . . . . . . . . . . . . . 9
1.4 Joint TRIMs . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.5 TRIMs and Other Investment Measures . . . . . . . . . . 12
1.6 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 15
2. International Trade and Distortions: General
Equilibrium Models 17
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Production Structures of the Economy . . . . . . . . . . . 17
2.3 A General Equilibrium Trade Model with a Tourism
Distortion . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
v
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vi Trade-Related Investment Measures
3. TRIMs, Environmental Taxes, and Foreign Investment 41
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.3 Tariff Restrictions . . . . . . . . . . . . . . . . . . . . . . . 47
3.4 Quantitative Restrictions . . . . . . . . . . . . . . . . . . . 52
3.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 58
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Part II Export-Share Requirements 61
4. Export-Share Requirements and Quota Protection 63
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.2 The Model of Export Requirements with Import
Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
4.3 Export Requirements and Welfare . . . . . . . . . . . . . . 67
4.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 72
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5. Export-Share Requirements, Trade Balances,
and Welfare: A Two-Period Analysis 77
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
5.3 Effects of Export Requirements . . . . . . . . . . . . . . . 82
5.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 86
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

6. Export Requirements, Investment Quotas, and Welfare
in a Dynamic Economy 91
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6.3 Welfare Effects of Foreign Investment Quotas
and Export Requirements . . . . . . . . . . . . . . . . . . 98
6.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 104
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
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Contents vii
7. The Impact of Export-Share Requirements Under
Production Uncertainty 107
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 107
7.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
7.3 Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
7.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 122
Part III Content Protection, Equity Controls,
and Foreign Investment 125
8. Content Protection, Urban Unemployment, and Welfare 127
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 127
8.2 A Three-Sector Model . . . . . . . . . . . . . . . . . . . . 128
8.3 Content Protection and Resource Allocation . . . . . . . . 132
8.4 Content Protection and Welfare . . . . . . . . . . . . . . . 135
8.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 137
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
9. Local Content Requirements, Welfare, and Trade Balance 141
9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 141
9.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
9.3 Effects of Content Protection . . . . . . . . . . . . . . . . 147
9.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 151
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
10. Wholly Foreign-Owned Enterprises or Joint Ventures 153
10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 153

10.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
10.3 The Resource Allocation and Welfare Effects . . . . . . . . 157
10.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 163
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
11. Domestic Equity Controls of Multinational Enterprises 165
11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 165
11.2 General Equilibrium Analysis of Domestic Equity
Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
11.3 The Case of Quotas . . . . . . . . . . . . . . . . . . . . . . 168
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viii Trade-Related Investment Measures
11.4 The Case of Tariffs . . . . . . . . . . . . . . . . . . . . . . 172
11.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 174
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
12. Trade Liberalization, Foreign Ownership, and the
Environment 177
12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 177
12.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
12.3 Optimal Ownership and Environmental Policies . . . . . . 181
12.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 186
13. Optimal Foreign-Investment and Pollution Taxes 187
13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 187
13.2 A Benchmark Model . . . . . . . . . . . . . . . . . . . . . 189
13.3 Investment Tax Credits and the Optimal
Pollution Tax . . . . . . . . . . . . . . . . . . . . . . . . . 194
13.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 200
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
14. Foreign Capital and the Economy Under Imperfect
Competition 203
14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 203
14.2 The General Equilibrium Model with Oligopolistic
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . 205
14.3 Foreign Capital Inflows and Resource Allocation . . . . . . 208
14.4 Foreign Capital Inflows and National Welfare . . . . . . . 212
14.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 215

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
15. Profit-Sharing and International Capital Mobility 217
15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 217
15.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
15.3 The Short-Run Impacts of Profit-Sharing . . . . . . . . . . 221
15.4 The Long-Run Equilibrium and Dynamics . . . . . . . . . 223
15.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 227
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
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Contents ix
16. Privatization and Foreign Competition in Developing
Economies 231
16.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 231
16.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
16.3 Wage Inequality . . . . . . . . . . . . . . . . . . . . . . . . 235
16.4 Social Welfare . . . . . . . . . . . . . . . . . . . . . . . . . 239
16.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 240
Appendix: Stability . . . . . . . . . . . . . . . . . . . . . . . . . 241
17. Domestic Equity Control, Capital Accumulation,
and Welfare: Theory and China’s Evidence 243
17.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 243
17.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
17.3 Empirical Results of Equity Control on China’s
Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
17.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 252
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Part IV Issues of Export Duty Rebates 257
18. Export Duty Rebates and Export Performance: Theory
and China’s Experience 259
18.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 259
18.2 A Theoretical Model . . . . . . . . . . . . . . . . . . . . . 261
18.3 Export Tax Rebates and China’s Exports. . . . . . . . . . 266
18.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 269
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
19. Import Duty Drawback and VAT Rebate Policies:
A CGE Analysis for China 273
19.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 273
19.2 A Theoretical Model of Tax Rebates . . . . . . . . . . . . 274
19.3 Modeling China’s Duty Drawbacks and Tax Rebates
in a CGE Framework . . . . . . . . . . . . . . . . . . . . . 280
19.4 Effects of Duty Drawbacks and Tax Rebates: Illustrative
Experiments . . . . . . . . . . . . . . . . . . . . . . . . . . 282