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Divide and Rule: Geographical Diversification and the Multinational Firm

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  • Dermot Leahy
  • Stephen Pavelin

Abstract

We develop a model to illustrate a motive for FDI that derives from a firm's overall locational strategy. A firm, that initially has a plant in its home country, may choose to also have a foreign plant in order to improve its bargaining position versus local labour unions. This permits the firm to reduce wages. Furthermore, the existence of a second foreign plant acts to discipline the demands of foreign workers. Thus, the firm is faced with a link between the wage and its degree of geographical diversification. This drives up the number of plants the firm has in equilibrium.

Suggested Citation

  • Dermot Leahy & Stephen Pavelin, 2004. "Divide and Rule: Geographical Diversification and the Multinational Firm," Open Economies Review, Springer, vol. 15(4), pages 363-374, October.
    • Handle: RePEc:kap:openec:v:15:y:2004:i:4:p:363-374
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    Cited by:

    1. Stephen Pavelin & Lynda A. Porter, 2011. "Race-to-the-Bottom or -Top at Home or Abroad: Health and Safety Standards and the Multinational Firm," The Economic and Social Review, Economic and Social Studies, vol. 42(3), pages 289-311.
    2. Dumont, Michel & Rayp, Glenn & Willemé, Peter, 2012. "The bargaining position of low-skilled and high-skilled workers in a globalising world," Labour Economics, Elsevier, vol. 19(3), pages 312-319.
    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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