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Temporary Social Dumping, Union Legalisation and FDI: A Note on the Strategic Use of Standards

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  • Dermot Leahy
  • Catia Montagna

Abstract

This paper analyses the welfare implications for a developing country of using union legalisation as a policy instrument to attract inward foreign direct investment. While its presence may discourage a foreign multinational (MNE) from locating in the host country, unionisation is an important rent-extracting instrument for the host country. We show that if the MNE benefits from dynamic effects, the host country government may have an incentive to adopt temporary social dumping: banning the union in the short run to extract higher rents in the future. However, if the government can use a fiscal instrument in conjunction with union legalisation, the former can circumvent the need to engage in social dumping.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 99-08.

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Handle: RePEc:kud:epruwp:99-08

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Cited by:
  1. Dewit, Gerda & Görg, Holger & Montagna, Catia, 2003. "Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage, and FDI," IZA Discussion Papers 845, Institute for the Study of Labor (IZA).
  2. Dermot Leahy & Catia Montagna, 2005. "Union Bargaining Power, Social Dumping, and Foreign Direct Investment," International Trade 0510001, EconWPA.
  3. Dermot Leahy & Catia Montagna, 2005. "Union legislation and export platform FDI," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(4), pages 437-452.
  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.

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