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Firm productivity and foreign direct investment: a non-monotonic relationship

Author

Listed:
  • Arijit Mukherjee

    (University of Nottingham, UK)

  • Sugata Marjit

    (Centre for Studies in Social Sciences, Kolkata, India)

Abstract

The theoretical prediction of Head and Ries (‘Heterogeneity and the FDI versus export decision of Japanese manufacturers', 2003, Journal of the Japanese and International Economies, 17: 448-67) is that if the foreign plant is not used to serve the home market, the exporters can be more productive than the foreign direct investors only if the host-country wage is lower than the home-country wage. With unionized labor markets, we show that there always exist situations where the exporters are more productive than the foreign investors even if the host-country wage is higher than the home-country wage. Given the cost of FDI, a higher trade cost and higher bargaining powers of the labor unions make this result more likely.

Suggested Citation

  • Arijit Mukherjee & Sugata Marjit, 2009. "Firm productivity and foreign direct investment: a non-monotonic relationship," Economics Bulletin, AccessEcon, vol. 29(1), pages 230-237.
    • Handle: RePEc:ebl:ecbull:eb-08f10032
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    References listed on IDEAS

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    Cited by:

    1. Arijit Mukherjee, 2010. "A note on firm-productivity and foreign direct investment," Economics Bulletin, AccessEcon, vol. 30(3), pages 2107-2111.
    2. Arijit Mukherjee & Umut Erksan Senalp, 2021. "Firm‐productivity and cross border merger," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 838-859, September.
    3. Domenico Buccella, 2011. "Labor unions and economic integration: A review," Económica, Instituto de Investigaciones Económicas, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 25-89, January-D.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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