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Trade, FDI and Unions

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  • Collie, David R
  • Vandenbussche, Hylke

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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Bibliographic Info

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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Keywords: Cournot Competition; FDI; Monopoly Union; Trade Policy;

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References

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  1. Haaland, Jan I & Wooton, Ian, 1999. " International Competition for Multinational Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 631-49, December.
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  4. Mezzetti, C. & Dinopoulos, E., 1989. "Domestic Unionization And Import Competition," Papers 337, California Davis - Institute of Governmental Affairs.
  5. 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.
  6. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-25, January.
  7. 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.
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  10. Leahy, Dermot & Montagna, Catia, 1999. "Unionisation and Foreign Direct Investment," CEPR Discussion Papers 2260, C.E.P.R. Discussion Papers.
  11. Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002 9, Royal Economic Society.
  12. Gianni De Fraja & George Norman, 2004. "Product Differentiation and the Location of International Production," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 151-170, 03.
  13. Huizinga, Harry, 1993. " International Market Integration and Union Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(2), pages 249-55.
  14. Cordella, Tito & Grilo, Isabel, 2001. "Social dumping and relocation: is there a case for imposing a social clause?," Regional Science and Urban Economics, Elsevier, vol. 31(6), pages 643-668, November.
  15. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  16. 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.
  17. 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.
  18. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Kjell Erik Lommerud & Frode Meland & Lars Sørgard, 2002. "Unionized Oligopoly, Trade Liberalization and Location Choice," CESifo Working Paper Series 777, CESifo Group Munich.
  2. Belderbos, R. & Vandenbussche, H. & Veugelers, R., 2004. "Antidumping duties, undertakings, and foreign direct investment in the EU," European Economic Review, Elsevier, vol. 48(2), pages 429-453, April.
  3. José Azevedo-Pereira & Gualter Couto & Cláudia Nunes, 2010. "Optimal timing of relocation," International Journal of Managerial Finance, Emerald Group Publishing, vol. 6(2), pages 143-163, April.
  4. Belderbos, Rene & Vandenbussche, Hylke & Veugelers, Reinhilde, 1999. "Undertakings and Antidumping Jumping FDI in Europe," CEPR Discussion Papers 2320, C.E.P.R. Discussion Papers.

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