Unionization Structure and the Incentives for Foreign Direct Investment

Arijit Mukherjee and Laixun Zhao

No 202, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: 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.

Keywords: Labor Unionizations; Entry mode; Export; Merger; FDI (search for similar items in EconPapers)
JEL-codes: F21 F23 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2007-06
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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