IDEAS home Printed from https://ideas.repec.org/a/bla/scandj/v107y2005i1p123-140.html
   My bibliography  Save this article

Should Governments Subsidise Inward Foreign Direct Investment?

Author

Listed:
  • Mette Rose Skaksen

Abstract

What happens when a government has incentives to subsidise inward FDI when labour markets are imperfectly competitive? Contrary to the traditional assumption in the literature, we allow the production in the multinational firm to either complement or substitute for local production. A new result is that the wage in the host country may decrease when production is moved to this country. The reason is that the union in the host country internalises product market externalities between the firms. Furthermore, it is shown that when a single country subsidises inward FDI, total world welfare might increase.

Suggested Citation

  • Mette Rose Skaksen, 2005. "Should Governments Subsidise Inward Foreign Direct Investment?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 123-140, March.
    • Handle: RePEc:bla:scandj:v:107:y:2005:i:1:p:123-140
    DOI: 10.1111/j.1467-9442.2005.00398.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9442.2005.00398.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-9442.2005.00398.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Pedro P. Barros & Luís Cabral, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-371, May.
    2. Leahy, Dermot & Montagna, Catia, 2000. "Unionisation and Foreign Direct Investment: Challenging Conventional Wisdom?," Economic Journal, Royal Economic Society, vol. 110(462), pages 80-92, March.
    3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    4. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    5. Glass, Amy Jocelyn & Saggi, Kamal, 1999. "FDI policies under shared factor markets," Journal of International Economics, Elsevier, vol. 49(2), pages 309-332, December.
    6. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
    7. Bughin, Jacques & Vannini, Stefano, 1995. "Strategic direct investment under unionized oligopoly," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 127-145, March.
    8. Skaksen, Mette Yde & Sorensen, Jan Rose, 2001. "Should trade unions appreciate foreign direct investment," Journal of International Economics, Elsevier, vol. 55(2), pages 379-390, December.
    9. repec:hal:wpspec:info:hdl:2441/8047 is not listed on IDEAS
    10. Zhao, Laixun, 1998. "The Impact of Foreign Direct Investment on Wages and Employment," Oxford Economic Papers, Oxford University Press, vol. 50(2), pages 284-301, April.
    11. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    12. Patrick Messerlin, 1999. "External Aspects of State Aids," Working Papers hal-03462454, HAL.
    13. repec:hal:spmain:info:hdl:2441/8047 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andreas Haufler & Ferdinand Mittermaier, 2011. "Unionisation Triggers Tax Incentives to Attract Foreign Direct Investment," Economic Journal, Royal Economic Society, vol. 121(553), pages 793-818, June.
    2. Rocha-Akis, Silvia, 2006. "Labour tax policies and strategic offshoring under unionised oligopoly," Department of Economics Working Paper Series 99, WU Vienna University of Economics and Business.
    3. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2015. "Strategic Corporate Social Responsibility by Multinational Enterprises," Working Papers 1501, University of Crete, Department of Economics.
    4. Hemmer, Hans-Rimbert & Krüger, Ralf & Seith, Jennifer, 2006. "Ausländische Direktinvestitionen: Flankierende Maßnahmen des Staates," Discussion Papers in Development Economics 36, Justus Liebig University Giessen, Institute for Development Economics.
    5. Silvia Rocha‐Akis & Ronnie Schöb, 2011. "Welfare Policy in the Presence of Unionised Labour and Internationally Mobile Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 93-119, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eckel, Carsten & Egger, Hartmut, 2009. "Wage bargaining and multinational firms," Journal of International Economics, Elsevier, vol. 77(2), pages 206-214, April.
    2. Carsten Eckel & Hartmut Egger, 2006. "Wage Bargaining and Multinational Firms in General Equilibrium," CESifo Working Paper Series 1711, CESifo.
    3. Leahy, Dermot & Montagna, Catia, 2012. "Strategic investment and international outsourcing in unionised oligopoly," Labour Economics, Elsevier, vol. 19(2), pages 260-269.
    4. Laixun Zhao & Makoto Okamura, 2010. "Competing to Outsource in the South," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 427-442, August.
    5. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
    6. Laixun Zhao, 2006. "International Labor Standards and Southern Competition," Discussion Paper Series 193, Research Institute for Economics & Business Administration, Kobe University.
    7. Junichiro Ishida & Noriaki Matsushima, 2005. "Outward Foreign Direct Investment in Unionized Oligopoly: Some Welfare Implications," Discussion Papers 2005-39, Kobe University, Graduate School of Business Administration.
    8. Hartmut Egger & Daniel Etzel, 2012. "Union Wage Setting and International Trade," IAAEU Discussion Papers 201209, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    9. Carsten Eckel & Hartmut Egger, 2017. "The Dilemma of Labor Unions: Local Objectives vs Global Bargaining," Review of International Economics, Wiley Blackwell, vol. 25(3), pages 534-566, August.
    10. repec:ebl:ecbull:v:6:y:2005:i:22:p:1-8 is not listed on IDEAS
    11. Silvia Rocha‐Akis & Ronnie Schöb, 2011. "Welfare Policy in the Presence of Unionised Labour and Internationally Mobile Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 93-119, March.
    12. Koskela, Erkki & Poutvaara, Panu, 2009. "Is There Scope for Gains from Revenue-Neutral Labor Tax Reforms with Flexible Outsourcing?," IZA Discussion Papers 3984, Institute of Labor Economics (IZA).
    13. Göddeke, Anna & Haucap, Justus & Herr, Annika & Wey, Christian, 2011. "Stabilität und Wandel von Arbeitsmarktinstitutionen aus wettbewerbsökonomischer Sicht," DICE Ordnungspolitische Perspektiven 10, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    14. Mukherjee, Arijit & Pennings, Enrico, 2011. "Unionization structure, licensing and innovation," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 232-241, March.
    15. Junichiro Ishida & Noriaki Matsushima, 2005. "FDI may help rival firms," Economics Bulletin, AccessEcon, vol. 6(22), pages 1-8.
    16. Leahy, Dermot & Montagna, Catia, 1999. "Unionisation and Foreign Direct Investment," CEPR Discussion Papers 2260, C.E.P.R. Discussion Papers.
    17. Arijit Mukherjee & Kullapat Suetrong, 2007. "Unionisation structure and strategic foreign direct investment," Discussion Papers 07/22, University of Nottingham, GEP.
    18. Junichiro Ishida & Noriaki Matsushima, 2008. "Domestic Competition and Foreign Direct Investment in Unionized Oligopoly," ISER Discussion Paper 0757, Institute of Social and Economic Research, Osaka University, revised Oct 2009.
    19. Subhayu Bandyopadhyay & Sudeshna Bandyopadhyay, 2001. "Efficient bargaining, welfare and strategic export policy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(2), pages 133-149.
    20. Jan Rose Skaksen, 2004. "International outsourcing when labour markets are unionized," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(1), pages 78-94, February.
    21. Nora Paulus & Patrice Pieretti & Benteng Zou, 2021. "Is a Dynamic Approach to Tax Games Relevant?," Annals of Economics and Statistics, GENES, issue 144, pages 113-138.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:scandj:v:107:y:2005:i:1:p:123-140. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.