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Trade, FDI and Unions

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Author Info
Collie, David R
Vandenbussche, Hylke

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Abstract

In this Paper we study the location behaviour of a foreign and a domestic footloose firm competing in output in the domestic product market. Both firms produce a homogenous good using a labour intensive technology. While the domestic country is unionized, the foreign country is not. Location equilibria are studied as a function of the foreign wage level, both under free trade and under an optimal domestic trade policy. We find that when foreign wage levels are relatively low, both firms agglomerate in the foreign market (North-South FDI) and the optimal government intervention by the North is a zero tariff on imports from the South. For intermediate wage levels abroad, both firms prefer to locate in their own market and the optimal domestic government intervention is a positive tariff on foreign imports. For relatively high foreign wage levels, the optimal tariff policy is such that both firms agglomerate in the domestic country (North-North FDI).

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2772.

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Date of creation: Apr 2001
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Handle: RePEc:cpr:ceprdp:2772

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Related research
Keywords: Cournot Competition FDI Monopoly Union Trade Policy

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February. [Downloadable!] (restricted)
  2. Huizinga, Harry, 1993. " International Market Integration and Union Wage Bargaining," Scandinavian Journal of Economics, Blackwell Publishing, vol. 95(2), pages 249-55.
  3. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August. [Downloadable!] (restricted)
  4. Gianni De Fraja & George Norman, 1998. "Product Differentiation and the Location of International Production," Discussion Papers Series, Department of Economics, Tufts University 9814, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  5. Naylor, Robin, 1997. "Union Wage Strategies and International Trade," The Warwick Economics Research Paper Series (TWERPS) 480, University of Warwick, Department of Economics.
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  6. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Norman, George & Motta, Massimo, 1993. "Eastern European Economic Integration and Foreign Direct Investment," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 2(4), pages 483-507, Winter.
  8. Rowthorn, R E, 1992. "Intra-industry Trade and Investment under Oligopoly: The Role of Market Size," Economic Journal, Royal Economic Society, vol. 102(411), pages 402-14, March. [Downloadable!] (restricted)
  9. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-89, August. [Downloadable!] (restricted)
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  10. Veugelers, Reinhilde & Vandenbussche, Hylke, 1999. "European anti-dumping policy and the profitability of national and international collusion," European Economic Review, Elsevier, vol. 43(1), pages 1-28, January. [Downloadable!] (restricted)
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  11. Leahy, Dermot & Montagna, Catia, 1999. "Unionisation and Foreign Direct Investment," CEPR Discussion Papers 2260, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Smith, Alasdair, 1987. "Strategic investment, multinational corporations and trade policy," European Economic Review, Elsevier, vol. 31(1-2), pages 89-96. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Leo Sleuwaegen & Enrico Pennings, 2002. "The reorganization decisions of troubled firms: exit, downscale or relocate," Vlerick Leuven Gent Management School Working Paper Series 2002-21, Vlerick Leuven Gent Management School. [Downloadable!]
  2. Lommerud, Kjell Erik & Meland, Frode & Sørgard, Lars, 2001. "Unionized Oligopoly, Trade Liberalization and Location Choice," CEPR Discussion Papers 2990, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Belderbos, Rene & Vandenbussche, Hylke & Veugelers, Reinhilde, 1999. "Undertakings and Antidumping Jumping FDI in Europe," CEPR Discussion Papers 2320, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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