By limiting imports through quotas, governments reduce the attractiveness of FDI and licensing.

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By limiting imports through quotas, governments increase the attractiveness of FDI and licensing. For example, the wave of FDI by Japanese auto companies in the United States during the 1980s and 1990s was partly driven by protectionist threats from Congress and by quotas on the importation of Japanese cars. For Japanese auto companies, these factors decreased the profitability of exporting and increased that of foreign direct investment.

By Limiting Imports Through Quotas, Governments Reduce the Attractiveness of FDI