Foreign Direct Investment and Wage Bargaining
University of Warwick - Department of Economics
University of Milan - Dipartimento di Economia Politica e Aziendale (DEPA)
CSGR Working Paper No. 41/99
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.
Number of Pages in PDF File: 28
JEL Classification: J51, L13, F12, F23working papers series
Date posted: February 15, 2000
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