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Unionization and Restrictions on Foreign Direct Investment

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  • Erica Owen

Abstract

Although inward foreign direct investment (FDI) has many benefits for a country as a whole, like trade, it is a source of competition for producers in the host country, with concomitant effects on labor markets. The entrance of foreign multinationals increases demand for skilled labor at the expense of unskilled labor, and also increases the elasticity of demand for labor because multinationals are able to shift production across borders. This raises the question of whether or not labor has an impact on policy toward inward FDI. I suggest that organized labor is a key determinant of the influence of labor on inward FDI restrictions. Not only do unions mitigate the collective action problem facing labor, but unionized workers, regardless of skill level, have incentives to support restrictions on inward FDI because rising elasticity of demand restricts bargaining power. I expect that higher levels of unionization will lead to greater restrictions on inward FDI. I find support for this hypothesis in an analysis of U.S. industry-level formal restrictions on inward FDI between 1981 and 2000. Industry skill intensity, a proxy for the distributional consequences of FDI for labor, does not explain variation in barriers to inward FDI, suggesting that the confluence of interests and influence is necessary for labor to influence policy.

Suggested Citation

  • Erica Owen, 2013. "Unionization and Restrictions on Foreign Direct Investment," International Interactions, Taylor & Francis Journals, vol. 39(5), pages 723-747, November.
    • Handle: RePEc:taf:ginixx:v:39:y:2013:i:5:p:723-747
    DOI: 10.1080/03050629.2013.834258
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    References listed on IDEAS

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    1. John T. Addison & Claus Schnabel (ed.), 2003. "International Handbook of Trade Unions," Books, Edward Elgar Publishing, number 2705.
    2. Lori G. Kletzer, 2001. "Job Loss from Imports: Measuring the Costs," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 110, January.
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    Cited by:

    1. Jirjahn, Uwe, 2024. "Corporate Globalization and Worker Representation," IZA Discussion Papers 16727, Institute of Labor Economics (IZA).
    2. Shin, Geiguen, 2019. "Direct and indirect impacts of liberal immigration policies on the inflow of multinationals in the U.S," Economics Discussion Papers 2019-42, Kiel Institute for the World Economy (IfW Kiel).
    3. Zenobia T. Chan & Sophie Meunier, 2022. "Behind the screen: Understanding national support for a foreign investment screening mechanism in the European Union," The Review of International Organizations, Springer, vol. 17(3), pages 513-541, July.
    4. Muhammad Ahsan Ali Raza & Chen Yan & Hafiz Syed Mohsin Abbas & Atta Ullah, 2021. "Impact of institutional governance and state determinants on foreign direct investment in Asian economies," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2596-2613, December.

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