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Exports versus export-platform FDI with endogenous wage determination

Listed author(s):
  • Lee, Ki-Dong
  • Lee, Woohyung

In this paper, we explain why unionized MNFs in the same industry choose different entry modes between export and export-platform FDI when serving the same market. The platform-type FDI becomes more likely, ceteris paribus, with higher wage-oriented behavior by the unions, deeper trade liberalization in the host country, and lower fixed costs incurred in the FDI. Some of our results are counter-intuitive. It is particularly shown that a non-unionized MNF undertakes FDI whereas a unionized MNF remains in the domestic country even in the absence of productivity differences between the firms. Under certain conditions, trade liberalization in the host country might cause a complete reversal in the location pattern between unionized and non-unionized firms. Moreover, FDI induced by trade liberalization might hurt the domestic economy as a whole due to the loss of union rents and rival firms' profits, which provides a rationale for the use of lump-sum production subsidies as a government policy.

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File URL: http://www.sciencedirect.com/science/article/pii/S0264999316000286
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 54 (2016)
Issue (Month): C ()
Pages: 479-489

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Handle: RePEc:eee:ecmode:v:54:y:2016:i:c:p:479-489
DOI: 10.1016/j.econmod.2016.01.016
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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