Direct Foreign Investment and Industry in the Iberian Peninsula

• Autor(a) principal: Corado, Cristina
• Data de Publicação: 1990
• Outros Autores: Leite, António Nogueira
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10362/85187

We have modified Smith and Venables (1988) model to investigate the factors determining direct foreign investment in the Iberian Peninsula, in the context of an enlarged Community. We assess the effects of the EC enlargement and a more protective stance in Portugal following Spain's liberalization. We determine these effects on four selected industries: electronic equipment, motor vehicles, pulp and paper ,and metal products. The policies simulated assess some of the implications of a calling for higher protectionism by some people in Portugal upon both countries' entry in the EC in 1986, given the seemingly deterioration of the level and type of foreign investment in Portugal. The model illustrates the forces for industrial reallocation towards Spain if one ignores the classical basis for trade, i.e. Portugal's lower relative wages. Furthermore, firms tend to move towards the larger markets, where access to customers is less costly. In addition, any move by Portugal towards higher protection may induce retaliation by Spain depending upon whether or not Spain is a larger or similar net exporter than Portugal in the relevant product.