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Divide and Rule: Geographical Diversification and the Multinational Firm

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Author Info
Dermot Leahy
Stephen Pavelin ()

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Abstract

We develop a model to illustrate a motive for FDI that derives from a firm's overall locational strategy. A firm, that initially has a plant in its home country, may choose to also have a foreign plant in order to improve its bargaining position versus local labour unions. This permits the firm to reduce wages. Furthermore, the existence of a second foreign plant acts to discipline the demands of foreign workers. Thus, the firm is faced with a link between the wage and its degree of geographical diversification. This drives up the number of plants the firm has in equilibrium.

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Publisher Info
Article provided by Springer in its journal Open Economies Review.

Volume (Year): 15 (2004)
Issue (Month): 4 (October)
Pages: 363-374
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Handle: RePEc:kap:openec:v:15:y:2004:i:4:p:363-374

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Web page: http://www.springerlink.com/link.asp?id=100323

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