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Employment Protection and Globalization in Dynamic Oligopoly

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  • Leahy, Dermot
  • Dewit, Gerda
  • Montagna, Catia

Abstract

We construct a model in which oligopolistic firms decide where to locate. Firms choose to locate either in a country where employment protection implies costly output adjustments or in one without adjustment costs. Using a two-period three-stage game with uncertainty it is demonstrated that location is influenced by both flexibility and strategic concerns. We show that the strategic effects under Cournot work towards domestic anchorage in the country with adjustment costs while those under Bertrand do not. Strategic agglomeration can occur in the inflexible country under Cournot and even under Bertrand provided uncertainty and foreign direct investment costs are low.

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  • Leahy, Dermot & Dewit, Gerda & Montagna, Catia, 2003. "Employment Protection and Globalization in Dynamic Oligopoly," CEPR Discussion Papers 3871, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3871
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    Citations

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    Cited by:

    1. Dewit, Gerda & Görg, Holger & Montagna, Catia, 2003. "Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage, and FDI," IZA Discussion Papers 845, Institute of Labor Economics (IZA).
    2. Alireza Naghavi, 2007. "Asymmetric Labor Markets, Southern Wages and the Location of Firms," Review of Development Economics, Wiley Blackwell, vol. 11(3), pages 463-481, August.
    3. Kjell Erik Lommerud & Odd Rune Straume, 2012. "Employment Protection Versus Flexicurity: On Technology Adoption in Unionised Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(1), pages 177-199, March.
    4. Barbieri Teresa & Devicienti Francesco & Manello Alessandro & Vannoni Davide, 2022. "The effect of EPL on the internationalization of small firms," Working papers 078, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    5. Haiwen Zhou, 2007. "Oligopolistic Competition And Economic Geography," Journal of Regional Science, Wiley Blackwell, vol. 47(5), pages 915-933, December.
    6. Martin Robson & Roxana Radulescu, 2004. "Does stricter employment protection legislation deter FDI?," Money Macro and Finance (MMF) Research Group Conference 2003 81, Money Macro and Finance Research Group.
    7. Alireza Naghavi, 2003. "Asymmetric labor markets and the location of firms: Are multinationals attracted to weak labor standards?," Working Papers 200323, School of Economics, University College Dublin.
    8. Sophie Lecostey, 2012. "Permanent uncertainty, employment protection, and firms'location," Economics Working Paper Archive (University of Rennes & University of Caen) 201240, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    9. Lommerud, Kjell Erik & Straume, Odd Rune, 2007. "Technology resistance and globalisation with trade unions: the choice between employment protection and flexicurity," Working Papers in Economics 13/07, University of Bergen, Department of Economics.
    10. Zierahn, Ulrich, 2011. "Regional unemployment and new economic geography," HWWI Research Papers 105, Hamburg Institute of International Economics (HWWI).
    11. Jan I. Haaland & Ian Wooton, 2007. "Domestic Labor Markets and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 15(3), pages 462-480, August.
    12. NAGHAVI Alireza, 2010. "Asymmetric Labor Markets and the Location of Firms: Are Multinationals Attracted to Loose Labor Standards?," EcoMod2003 330700111, EcoMod.
    13. Gerda Dewit & Holger Görg & Catia Montagna, 2009. "Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 93-110, April.
    14. Méjean, Isabelle & Patureau, Lise, 2010. "Firms' location decisions and minimum wages," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 45-59, January.

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    More about this item

    Keywords

    Uncertainty; Flexibility; Oligopoly; Employment protection; Foreign direct investment; Location;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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