Foreign Direct Investment, Labour Market Regulation and Self-Interested Governments

Tapio Palokangas

No 793, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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. We demonstrate that right-to-manage bargaining predicts higher returns for FDI than does non-unionization or efficient bargaining. This advantage is further magnified in the presence of credible wage contracts. When the labour market is nonunionized, or there is a bargain over employment, the ruling elite reaps the surplus of FDI through taxation or regulation. In the absence of credible contracts, unions have incentives to claim a bigger share of the revenue of FDI.

Keywords: lobbying; labour market regulation; foreign direct investment (search for similar items in EconPapers)
JEL-codes: D78 F21 F23 J51 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003-06
New Economics Papers: this item is included in nep-ifn, nep-lam and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - revised version published as "Investment, Expropriation and Unionization" in: Economics of Governance, 2009, 10 (1), 27-42

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