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Domestic Competition and Foreign Direct Investment in Unionized Oligopoly


  • Junichiro Ishida
  • Noriaki Matsushima


It is often argued, though mostly informally, that outward foreign direct investment (FDI) is a synonym for the export of employment and thus detrimental to the home economy. To see whether and under what conditions this intuition indeed holds true, we construct a model of unionized duopoly and examine welfare implications of outward FDI by paying special attention to the role of domestic competition. We find that the welfare effect of FDI is largely non-monotonic, and there are indeed such things as "excessive FDI." We also show that, when FDI reduces welfare, this negative effect arises more at the expense of consumers rather than the unions: in fact, quite contrary to the popular belief, FDI may actually benefit the unions because it serves to soften price competition between them. The paper points out that welfare effects of outward FDI hinges crucially on the nature of domestic competition, and policymakers must carefully take this aspect into consideration.

Suggested Citation

  • Junichiro Ishida & Noriaki Matsushima, 2008. "Domestic Competition and Foreign Direct Investment in Unionized Oligopoly," ISER Discussion Paper 0757, Institute of Social and Economic Research, Osaka University, revised Oct 2009.
  • Handle: RePEc:dpr:wpaper:0757

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    References listed on IDEAS

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    5. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2009. "Can deunionization lead to international outsourcing?," Journal of International Economics, Elsevier, vol. 77(1), pages 109-119, February.
    6. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July.
    7. Bughin, Jacques & Vannini, Stefano, 1995. "Strategic direct investment under unionized oligopoly," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 127-145, March.
    8. Robin Naylor & Michele Santoni, 2003. "Foreign direct investment and wage bargaining," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(1), pages 1-18.
    9. Straume, Odd Rune, 2003. "International mergers and trade liberalisation: implications for unionised labour," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 717-735, May.
    10. Zhao, Laixun, 2001. "Unionization, vertical markets, and the outsourcing of multinationals," Journal of International Economics, Elsevier, vol. 55(1), pages 187-202, October.
    11. Straume, Odd Rune, 2002. "Union collusion and intra-industry trade," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 631-652, May.
    12. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
    13. Skaksen, Mette Yde & Sorensen, Jan Rose, 2001. "Should trade unions appreciate foreign direct investment," Journal of International Economics, Elsevier, vol. 55(2), pages 379-390, December.
    14. Junichiro Ishida & Noriaki Matsushima, 2005. "FDI may help rival firms," Economics Bulletin, AccessEcon, vol. 6(22), pages 1-8.
    15. repec:ebl:ecbull:v:6:y:2005:i:22:p:1-8 is not listed on IDEAS
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    1. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2012. "North–South technology transfer in unionised multinationals," Journal of Development Economics, Elsevier, vol. 99(2), pages 385-395.

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