DP2990 Unionized Oligopoly, Trade Liberalization and Location Choice
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.