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Foreign Direct Investment, Labour Market Regulation and Self-Interested Governments

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  • Palokangas, Tapio K.

    (University of Helsinki)

Abstract

This document examines foreign direct investment (FDI) when multinationals and labour unions bargain over labour contracts and lobby the self-interested government for taxation and labour market regulation. We demonstrate that right-to-manage bargaining predicts higher returns for FDI than does non-unionization or efficient bargaining. This advantage is further magnified in the presence of credible wage contracts. When the labour market is nonunionized, or there is a bargain over employment, the ruling elite reaps the surplus of FDI through taxation or regulation. In the absence of credible contracts, unions have incentives to claim a bigger share of the revenue of FDI.

Suggested Citation

  • Palokangas, Tapio K., 2003. "Foreign Direct Investment, Labour Market Regulation and Self-Interested Governments," IZA Discussion Papers 793, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp793
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    References listed on IDEAS

    as
    1. Palokangas, Tapio, 2003. "The political economy of collective bargaining," Labour Economics, Elsevier, vol. 10(2), pages 253-264, April.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
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    4. Choi, Yongjae & Esfahani, Hadi Salehi, 1998. "Direct foreign investment and expropriation incentives: A mitigating role for match-specific capital," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(1), pages 47-59.
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    Cited by:

    1. Nabamita Dutta & Sanjukta Roy, 2009. "What Attracts Foreign Direct Investment: A Closer Look," Economic Affairs, Wiley Blackwell, vol. 29(3), pages 81-86, September.

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    More about this item

    Keywords

    lobbying; labour market regulation; foreign direct investment;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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