Divide and Rule: Geographical Diversification and the Multinational Firm |
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Authors: | Leahy Dermot Pavelin Stephen |
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Institution: | (1) University College Dublin, Dublin;(2) Department of Economics, University of Reading, RG6 6AW, United Kingdom |
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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. |
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Keywords: | foreign direct investment labour unions multinational corporations geographical diversification |
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