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Domestic Competition and Foreign Direct Investment in Unionized Oligopoly

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  • Junichiro Ishida
  • Noriaki Matsushima

Abstract

It is often argued, though mostly informally, that outward foreign direct investment (FDI) is a synonym for the export of employment and thus detrimental to the home economy. To see whether and under what conditions this intuition indeed holds true, we construct a model of unionized duopoly and examine welfare implications of outward FDI by paying special attention to the role of domestic competition. We find that the welfare effect of FDI is largely non-monotonic, and there are indeed such things as gexcessive FDI.h We also show that, when FDI reduces welfare, this negative effect arises more at the expense of consumers rather than the unions: in fact, quite contrary to the popular belief, FDI may actually benefit the unions because it serves to soften price competition between them. The paper points out that welfare effects of outward FDI hinges crucially on the nature of domestic competition, and policymakers must carefully take this aspect into consideration.

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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0757.

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Date of creation: Mar 2008
Date of revision: Oct 2009
Handle: RePEc:dpr:wpaper:0757

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References

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  1. Brander, James A. & Spencer, Barbara J., 1988. "Unionized oligopoly and international trade policy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 217-234, May.
  2. repec:ebl:ecbull:v:6:y:2005:i:22:p:1-8 is not listed on IDEAS
  3. Straume, Odd Rune, 2002. "Union collusion and intra-industry trade," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 631-652, May.
  4. Robin Naylor & Michele Santoni, 1999. "Foreign direct investment and wage bargaining," CSGR Working papers series 41/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  5. Leahy, D. & Montagna, C., 1999. "Unionisation and Foreign Direct Investment: Challenging Conventional Wisdom?," Papers 99/15, College Dublin, Department of Political Economy-.
  6. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2008. "Can Deunionization Lead to International Outsourcing?," CEPR Discussion Papers 6998, C.E.P.R. Discussion Papers.
  7. Straume, Odd Rune, 2003. "International mergers and trade liberalisation: implications for unionised labour," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 717-735, May.
  8. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
  9. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-25, January.
  10. Bughin, Jacques & Vannini, Stefano, 1995. "Strategic direct investment under unionized oligopoly," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 127-145, March.
  11. Zhao, Laixun, 2001. "Unionization, vertical markets, and the outsourcing of multinationals," Journal of International Economics, Elsevier, vol. 55(1), pages 187-202, October.
  12. Zhao, Laixun, 1995. "Cross-hauling direct foreign investment and unionized oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1237-1253, June.
  13. Skaksen, Mette Yde & Sorensen, Jan Rose, 2001. "Should trade unions appreciate foreign direct investment," Journal of International Economics, Elsevier, vol. 55(2), pages 379-390, December.
  14. Junichiro Ishida & Noriaki Matsushima, 2005. "FDI may help rival firms," Economics Bulletin, AccessEcon, vol. 6(22), pages 1-8.
  15. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July.
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Cited by:
  1. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2012. "North–South technology transfer in unionised multinationals," Journal of Development Economics, Elsevier, vol. 99(2), pages 385-395.

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