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Firm productivity and foreign direct investment: a non-monotonic relationship

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  • Arijit Mukherjee

    ()
    (University of Nottingham, UK)

  • Sugata Marjit

    ()
    (Centre for Studies in Social Sciences, Kolkata, India)

Abstract

The theoretical prediction of Head and Ries (‘Heterogeneity and the FDI versus export decision of Japanese manufacturers', 2003, Journal of the Japanese and International Economies, 17: 448-67) is that if the foreign plant is not used to serve the home market, the exporters can be more productive than the foreign direct investors only if the host-country wage is lower than the home-country wage. With unionized labor markets, we show that there always exist situations where the exporters are more productive than the foreign investors even if the host-country wage is higher than the home-country wage. Given the cost of FDI, a higher trade cost and higher bargaining powers of the labor unions make this result more likely.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 1 ()
Pages: 230-237

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Handle: RePEc:ebl:ecbull:eb-08f10032

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  1. Jože P. Damijan & Sašo Polanec & Janez Prašnikar, 2007. "Outward FDI and Productivity: Micro-evidence from Slovenia," The World Economy, Wiley Blackwell, vol. 30(1), pages 135-155, 01.
  2. Saggi, Kamal, 2000. "Trade, foreign direct investment, and international technology transfer : a survey," Policy Research Working Paper Series 2349, The World Bank.
  3. Arijit Mukherjee, 2008. "Unionised Labour Market and Strategic Production Decision of a Multinational," Economic Journal, Royal Economic Society, vol. 118(532), pages 1621-1639, October.
  4. Head, Keith & Ries, John, 2003. "Heterogeneity and the FDI versus export decision of Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 448-467, December.
  5. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  6. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  7. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Octomber.
  8. Robert J. Flanagan, 1999. "Macroeconomic Performance and Collective Bargaining: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1150-1175, September.
  9. Lopez, Monica Correa & Naylor, Robin A., 2004. "The Cournot-Bertrand profit differential: A reversal result in a differentiated duopoly with wage bargaining," European Economic Review, Elsevier, vol. 48(3), pages 681-696, June.
  10. Sourafel Girma & Richard Kneller & Mauro Pisu, 2005. "Exports versus FDI: An Empirical Test," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(2), pages 193-218, July.
  11. Gittleman, Maury & Wolff, Edward N, 1993. "International Comparisons of Inter-industry Wage Differentials," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(3), pages 295-312, September.
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Cited by:
  1. Arijit Mukherjee, 2010. "A note on firm-productivity and foreign direct investment," Economics Bulletin, AccessEcon, vol. 30(3), pages 2107-2111.

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