DP2990 Unionized Oligopoly, Trade Liberalization and Location Choice

Author(s): Kjell Erik Lommerud, Frode Meland, Lars Sørgard
Publication Date: October 2001
Keyword(s): foreign direct investments, trade liberalization, unionized oligopoly
JEL(s): F15, F16, F21, J51, L13
Programme Areas: Public Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2990

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.