Working Paper: CEPR ID: DP2990
Authors: Kjell Erik Lommerud; Frode Meland; Lars Sørgard
Abstract: In a two-country reciprocal-dumping model, with one country unionized, we analyse how wage setting and firm location are influenced by trade liberalization. We show that trade liberalization can induce a unionized firm to move all production abroad. This cannot prevail in a corresponding, non-unionized model. Trade liberalization has a non-monotonic effect on wages. For a given location choice, trade liberalization increases national welfare in the unionized country. When a shift of some or all production to the foreign country occurs, national welfare can be reduced.
Keywords: Foreign Direct Investments; Trade Liberalization; Unionized Oligopoly
JEL Codes: F15; F16; F21; J51; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | relocation of unionized firm production abroad (F16) |
| trade liberalization (F13) | non-monotonic effect on wages (J31) |
| initial increase in competition (L13) | initial rise in wage demands (J39) |
| relocation of firms (R30) | decline in wages (J31) |
| trade liberalization (F13) | increase in national welfare in unionized country (J58) |
| job losses (J63) | reduction in national welfare (H53) |