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Exports versus export-platform FDI with endogenous wage determination

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  • Lee, Ki-Dong
  • Lee, Woohyung

Abstract

In this paper, we explain why unionized MNFs in the same industry choose different entry modes between export and export-platform FDI when serving the same market. The platform-type FDI becomes more likely, ceteris paribus, with higher wage-oriented behavior by the unions, deeper trade liberalization in the host country, and lower fixed costs incurred in the FDI. Some of our results are counter-intuitive. It is particularly shown that a non-unionized MNF undertakes FDI whereas a unionized MNF remains in the domestic country even in the absence of productivity differences between the firms. Under certain conditions, trade liberalization in the host country might cause a complete reversal in the location pattern between unionized and non-unionized firms. Moreover, FDI induced by trade liberalization might hurt the domestic economy as a whole due to the loss of union rents and rival firms' profits, which provides a rationale for the use of lump-sum production subsidies as a government policy.

Suggested Citation

  • Lee, Ki-Dong & Lee, Woohyung, 2016. "Exports versus export-platform FDI with endogenous wage determination," Economic Modelling, Elsevier, vol. 54(C), pages 479-489.
    • Handle: RePEc:eee:ecmode:v:54:y:2016:i:c:p:479-489
    DOI: 10.1016/j.econmod.2016.01.016
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    Cited by:

    1. Adolfo Maza & Paula Gutiérrez-Portilla, 2022. "Outward FDI and exports relation: A heterogeneous panel approach dealing with cross-sectional dependence," International Economics, CEPII research center, issue 170, pages 174-189.

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    More about this item

    Keywords

    Fixed cost; Export-platform FDI; Labor union; Plant location; Trade liberalization;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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