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Unionisation and Foreign Direct Investment

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  • Leahy, Dermot
  • Montagna, Catia

Abstract

This paper investigates the effects of different degrees of wage setting centralisation on (1) the incentive of a MNE to locate in a host country, (2) the optimal level of investment it decides to commit to its foreign operation, and (3) the host country's welfare. Decentralised and centralised wage bargaining are considered. The nature of product market competition between the MNE and domestic firms affects results that cast doubt on some of the conventional wisdom on FDI. In particular, we show that: (i) it is not always welfare improving to attract inward FDI, and (ii) the MNE may prefer centralised to decentralised wage setting regimes.

Suggested Citation

  • Leahy, Dermot & Montagna, Catia, 1999. "Unionisation and Foreign Direct Investment," CEPR Discussion Papers 2260, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2260
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Laixun Zhao, 2006. "International Labor Standards and Southern Competition," Discussion Paper Series 193, Research Institute for Economics & Business Administration, Kobe University.
    2. Collie, D. & Vandenbussche, H., 1999. "Trade, FDI, and unions," Discussion Paper 1999-42, Tilburg University, Center for Economic Research.
    3. Andreas Haufler & Ferdinand Mittermaier, 2011. "Unionisation Triggers Tax Incentives to Attract Foreign Direct Investment," Economic Journal, Royal Economic Society, vol. 121(553), pages 793-818, June.
    4. Palokangas, Tapio K., 2003. "Foreign Direct Investment, Labour Market Regulation and Self-Interested Governments," IZA Discussion Papers 793, Institute of Labor Economics (IZA).
    5. Michael Pfaffermayr, 2001. "Employment in domestic plants and foreign affiliates: A note on the elasticity of substitution," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(2), pages 347-364, June.
    6. Kotov, Denis, 2008. "How Changing Investment Climate Impacts on the Foreign Investors Investment Decision: Evidence from FDI in Germany," MPRA Paper 8777, University Library of Munich, Germany.

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    More about this item

    Keywords

    FDI; Strategic Behaviour; Unionisation;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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