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Foreign direct investment and wage bargaining

By Robin Naylor and Michele Santoni

Abstract

We derive the sub-game perfect Nash equilibria for the foreign direct investment (FDI) game played between two unionised firms. Among other results, we show that FDI is less likely, ceteris paribus, the greater is union bargaining power, the stronger the weight the union attaches to wages, and the more substitutable are firms’ products in the potential host country. We derive results concerning the conditions under which FDI will be reciprocal. We also examine conditions under which the FDI game between firms will possess the characteristics of a Prisoners’ Dilemma. Finally, we consider the possibility that firms might delegate wage determination to unions as a method of strategic deterrence against entry by FDI

Topics: HG, HD
Publisher: University of Warwick. Centre for the Study of Globalisation and Regionalisation
Year: 1999
OAI identifier: oai:wrap.warwick.ac.uk:2084

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