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Foreign Direct Investment, Labour Unions, and Self-interested Governments

By Tapio Palokangas


This document examines foreign direct investment (FDI) when multinationals and labour unions bargain over labour contracts and lobby the self-interested government for taxation and labour market regulation. It is shown that FDI is best protected from expropriation in unionized economies with right-to-manage bargaining, not bargaining over wages and employment. When the labour market is nonunionized or when there is bargaining over wages and employment, the ruling elite can use taxation or labour market regulation as a nondistorting vehicle to expropriate the surplus of FDI

Topics: Journal of Economic Literature, F21, F23, J51, D78 Keywords, foreign direct investment, labour unions, lobbying Corresponding
Year: 2004
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