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Incumbents and Protectionism: The Political Economy of Foreign Entry Liberalization

2008, Journal of Financial Economics

Anusha Chari, Nandini Gupta

Abstract

This paper investigates the influence of incumbent firms on the decision to allow foreign direct investment into an industry. Based on data from India’s economic reforms, the results suggest that firms in concentrated industries are more successful at preventing foreign entry, that state-owned firms are more successful at stopping foreign entry than similarly placed private firms, and that profitable state-owned firms are more successful at stopping foreign entry than unprofitable state-owned firms. These findings continue to hold after controlling for industry characteristics such as the presence of natural monopolies and the size of the workforce. The pattern of foreign entry liberalization supports the private interest view of policy implementation.

Citation

Chari, Anusha and Nandini Gupta (2008), "Incumbents and Protectionism: The Political Economy of Foreign Entry Liberalization," Journal of Financial Economics, Vol. 88, No. 3, June, pp. 633-656.