Hey guys, in example 8 question 1, the text says exporting firms will be a more attractive investment under an FTA. However, in the quota section, it says: “With quotas, foreign producers can often raise the price of their goods and earn greater profits than they would without the quota.”
If the exporter can earn a higher profit with the quota, wouldn’t that mean they are a less attractive investment under an FTA (as they would no longer be earing the quota rents?)
EDIT: The exporter would also be worse off if any subsidies were removed, right? So they would only really be better off if it was tariffs that were removed (or a quota with importer country’s govt fully capturing quota rents).
Seems like it would depend on what the previous barriers were as to whether or not the exporter is better off under an FTA, but the text says they are unconditionally better.