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Unionization Structure and the Incentives for Foreign Direct Investment


  • Arijit Mukherjee

    (School of Economics, University of Nottingham (UK) and The Leverhulme Centre for Research in Globalisation and Economic Policy (UK))

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)


We examine the effects of unionization in the host country on a firm's choices of entry mode when serving a foreign market, i.e., its incentives for exporting, green-field FDI and merger. If, due to government regulations the merged firm must operate a plant in the host country, we find that the firm does green-field investment under decentralized unions, but chooses a merger under a centralized union. The firm's incentive for FDI (either green-field FDI or merger) compared to exporting is higher under decentralized unions than under a centralized union. In contrast, if the merged firm can use its plant from any country, a merger may occur even under decentralized unions, but in this case the merged firm uses the plant in the nonunionized country. Under a centralized union, merger always arises if the merged firm can produce in any country, but it chooses to produce in the host country if the market is small.

Suggested Citation

  • Arijit Mukherjee & Laixun Zhao, 2007. "Unionization Structure and the Incentives for Foreign Direct Investment," Discussion Paper Series 202, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:202

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    Cited by:

    1. Luciano Fanti & Nicola Meccheri, 2013. "Managerial Delegation under Alternative Unionization Structures," LABOUR, CEIS, vol. 27(1), pages 38-57, March.

    More about this item


    Labor Unionizations; Entry mode; Export; Merger; FDI;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business


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