Foreign direct investment and wage bargaining

Robin Naylor () and Michele Santoni

CSGR Working papers series from Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick

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.

Keywords: Foreign direct investment; oligopoly; wage bargaining. (search for similar items in EconPapers)
Date: 1999-10
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Journal Article: Foreign direct investment and wage bargaining (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:wck:wckewp:41/99

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