International share ownership, profit shift and protectionism

This paper examines the implications of increasing globalisation of stock market ownership on the economics of protection. Current data on European, Japanese and Australian stock exchanges indicate that over 30 per cent of the stock market is foreign-owned in most cases, a large increase on a couple of decades ago. Foreign share ownership in the USA lags behind these levels, but is increasing fast. This degree of foreign share- ownership is likely to change qualitatively the nature of the response of governments to FDI and support for 'domestic' firms. In particular, two worked examples, based upon duopoly theory, suggest that the level of foreign share-ownership is sufficient to render protection unattractive.