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Arijit Mukherjee and Sugata Marjit
 
''Firm productivity and foreign direct investment: a non-monotonic relationship''
( 2009, Vol. 29 No.1 )
 
 
The theoretical prediction of Head and Ries (‘Heterogeneity and the FDI versus export decision of Japanese manufacturers', 2003, Journal of the Japanese and International Economies, 17: 448-67) is that if the foreign plant is not used to serve the home market, the exporters can be more productive than the foreign direct investors only if the host-country wage is lower than the home-country wage. With unionized labor markets, we show that there always exist situations where the exporters are more productive than the foreign investors even if the host-country wage is higher than the home-country wage. Given the cost of FDI, a higher trade cost and higher bargaining powers of the labor unions make this result more likely.
 
 
Keywords:
JEL: F1 - Trade: General
F2 - International Factor Movements and International Business: General
 
Manuscript Received : Nov 18 2008 Manuscript Accepted : Mar 02 2009

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