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Employment-protecting Labour Market Institutions and Inward Foreign Direct Investments

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  • Minas Vlassis

Abstract

This paper proposes labour market institutional arrangements as a strategic device to induce or deter export-substituting inward foreign direct investments (FDI) - in either instance protecting domestic employment. In a union-oligopoly context it is shown that, if the FDI-associated unit costs (FC) are not high enough, then employment-neutral (-enhancing) inward FDI will emerge in equilibrium if the domestic wage setting is credibly centralized and the unemployment benefit is sufficiently high (low), each instance arising for a different range of - intermediate - FC values. If however the FC values are sufficiently high, then the centralized structure of wage setting along with a low enough unemployment benefit will deter employment-reducing inward FDI. Copyright 2009 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

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  • Minas Vlassis, 2009. "Employment-protecting Labour Market Institutions and Inward Foreign Direct Investments," LABOUR, CEIS, vol. 23(4), pages 677-696, December.
  • Handle: RePEc:bla:labour:v:23:y:2009:i:4:p:677-696
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    References listed on IDEAS

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    1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
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    7. Dhillon, Amrita & Petrakis, Emmanuel, 2002. "A generalised wage rigidity result," International Journal of Industrial Organization, Elsevier, vol. 20(3), pages 285-311, March.
    8. John H Dunning, 1980. "Towards an Eclectic Theory of International Production: Some Empirical Tests," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 11(1), pages 9-31, March.
    9. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    10. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-595, September.
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