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Asymmetric Labor Markets and the Location of Firms - Are Multinationals Attracted to Weak Labor Standards?

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Author Info
Alireza Naghavi (University College Dublin)

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Abstract

This paper studies the strategic behavior of multinationals towards weak labor standards in developing countries (South). Without a marginal cost pricing policy, abundant labor in the South gives firms the power to set wages through their choice of output. A strategic reduction in output offsets or weakens direct gains from lower wages. In an open economy, it also increases output and profits of a competitor that operates in a perfect labor market. These effects lower profitability of locating in the South casting doubts on traditional beliefs that multinationals are always attracted to lower wages. Adopting standards enhances Southern welfare unambiguously.

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File URL: http://www.ucd.ie/economics/research/papers/2003/WP03.23.pdf
File Format: application/pdf
File Function: First version, 2003
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Publisher Info
Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200323.

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Length: 28 pages
Date of creation: 14 Oct 2003
Date of revision:
Handle: RePEc:ucn:wpaper:200323

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Related research
Keywords: Labor standards; Labor market imperfection; Oligopsony; Location of firms; Wages; Strategic behavior; Multinationals; Welfare;

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Find related papers by JEL classification:
J80 - Labor and Demographic Economics - - Labor Standards - - - General
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
R38 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Government Policies; Regulatory Policies
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. Dewit, Gerda & Dermot Leahy & Catia Montagna, 2003. "Employment protection and globalisation in dynamic oligopoly," Royal Economic Society Annual Conference 2003 57, Royal Economic Society. [Downloadable!]
    Other versions:
  2. Drusilla Brown & Alan Deardorff & Robert Stern, 1998. "Trade and Labor Standards," Open Economies Review, Springer, vol. 9(2), pages 171-194, April. [Downloadable!] (restricted)
    Other versions:
  3. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2002. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," Working Papers 483, Research Seminar in International Economics, University of Michigan. [Downloadable!]
    Other versions:
  4. Martin, Will & Maskus, Keith E, 2001. "Core Labor Standards and Competitiveness: Implications for Global Trade Policy," Review of International Economics, Blackwell Publishing, vol. 9(2), pages 317-28, May. [Downloadable!] (restricted)
  5. Maskus, Keith E., 1997. "Should core labor standards be imposed through international trade policy?," Policy Research Working Paper Series 1817, The World Bank. [Downloadable!]
  6. V. Bhaskar & Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring. [Downloadable!] (restricted)
  7. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November. [Downloadable!] (restricted)
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  8. W. Max Corden & Neil Vousden, 1998. "Paved With Good Intentions: Social Dumping And Raising Labour Standards In Developing Countries," Departmental Working Papers 1998-03, Australian National University, Economics RSPAS. [Downloadable!]
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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. Oslington, Paul, 2005. "Trade and the distributional politics of international labour standards," MPRA Paper 963, University Library of Munich, Germany. [Downloadable!]
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