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Employment Protection and Globalization in Dynamic Oligopoly

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Author Info
Dewit, Gerda
Leahy, Dermot
Montagna, Catia

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Abstract

We construct a model in which oligopolistic firms decide where to locate. Firms choose to locate either in a country where employment protection implies costly output adjustments or in one without adjustment costs. Using a two-period three-stage game with uncertainty it is demonstrated that location is influenced by both flexibility and strategic concerns. We show that the strategic effects under Cournot work towards domestic anchorage in the country with adjustment costs while those under Bertrand do not. Strategic agglomeration can occur in the inflexible country under Cournot and even under Bertrand provided uncertainty and foreign direct investment costs are low.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3871.

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Date of creation: Apr 2003
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Handle: RePEc:cpr:ceprdp:3871

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Related research
Keywords: employment protection; flexibility; foreign direct investment; location; oligopoly; uncertainty;

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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
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. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
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  3. Sung, Hongmo & Lapan, Harvey E, 2000. "Strategic Foreign Direct Investment and Exchange-Rate Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 411-23, May.
    Other versions:
  4. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February. [Downloadable!] (restricted)
  5. Hirsch, Seev, 1976. "An International Trade and Investment Theory of the Firm," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 258-70, July. [Downloadable!] (restricted)
  6. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476.
  7. 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)
  8. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August. [Downloadable!] (restricted)
  9. Lindbeck, Assar & Snower, Dennis J, 1988. " Job Security, Work Incentives and Unemployment," Scandinavian Journal of Economics, Blackwell Publishing, vol. 90(4), pages 453-74.
  10. Lapham, Beverly & Ware, Roger, 1994. "Markov puppy dogs and related animals," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 569-593, December. [Downloadable!] (restricted)
  11. Jun, Byoung & Vives, Xavier, 2001. "Incentives in Dynamic Duopoly," CEPR Discussion Papers 2899, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May. [Downloadable!] (restricted)
  14. 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. Dewit, G. & Holger, G. & Montagna, C., 2003. "Should I stay or should I go? A note on employment protection, domestic anchorage, and FDI," Economics, Finance and Accounting Department Working Paper Series n1291003, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
    Other versions:
  2. Alireza Naghavi, 2005. "Asymmetric Labor Markets, Southern Wages, and the Location of Firms," Working Papers 2005.17, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  3. Kjell Erik Lommerud & Odd Rune Straume, 2008. "Employment Protection versus Flexicurity: On Technology Adoption in Unionised Firms," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Gerda Dewit & Holger Görg & Catia Montagna, 2009. "Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 93-110, April. [Downloadable!] (restricted)
  5. Haaland, Jan I. & Wooton, Ian, 2003. "Domestic Labour Markets and Foreign Direct Investment," CEPR Discussion Papers 3989, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Kjell Erik Lommerud & Odd Rune Straume, 2007. "Technology resistance and globalisation with trade unions: the choice between employment protection and flexicurity," NIPE Working Papers 25/2007, NIPE - Universidade do Minho. [Downloadable!]
  7. Martin Robson & Roxana Radulescu, 2004. "Does stricter employment protection legislation deter FDI?," Money Macro and Finance (MMF) Research Group Conference 2003 81, Money Macro and Finance Research Group. [Downloadable!]
  8. Alireza Naghavi, 2003. "Asymmetric Labor Markets and the Location of Firms - Are Multinationals Attracted to Weak Labor Standards?," Working Papers 200323, School Of Economics, University College Dublin. [Downloadable!]
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