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Firm productivity and foreign direct investment: a non-monotonic relationship

  • Arijit Mukherjee

    ()

    (University of Nottingham, UK)

  • Sugata Marjit

    ()

    (Centre for Studies in Social Sciences, Kolkata, India)

The theoretical prediction of Head and Ries (‘Heterogeneity and the FDI versus export decision of Japanese manufacturers', 2003, Journal of the Japanese and International Economies, 17: 448-67) is that if the foreign plant is not used to serve the home market, the exporters can be more productive than the foreign direct investors only if the host-country wage is lower than the home-country wage. With unionized labor markets, we show that there always exist situations where the exporters are more productive than the foreign investors even if the host-country wage is higher than the home-country wage. Given the cost of FDI, a higher trade cost and higher bargaining powers of the labor unions make this result more likely.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 1 ()
Pages: 230-237

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Handle: RePEc:ebl:ecbull:eb-08f10032
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