QUID PRO QUO FOREIGN INVESTMENT AND VERS: A NASH BARGAINING APPROACH*

We construct a two-period model of industry-specific quid pro quo direct foreign investment (DFI) which occurs with the view to increasing the level of a future voluntary export restraint (VER). The wage and the VER are determined through Nash bargaining. We identify the conditions which generate quid pro quo DFI and examine its effects on profits, the utility of the union and welfare. In the absence of political-economy considerations, more DFI increases the degree of endogenous protection.