Title: Can import tariffs deter outward FDI
Authors: Collie, D ×
Vandenbussche, Hylke #
Issue Date: Oct-2005
Series Title: Open Economies Review vol:16 issue:4 pages:341-362
Abstract: In this paper we analyze a country's optimal trade policy when its labor market is unionized and firms are footloose. We show that an important objective for governments to use import protection is to prevent their domestic multinationals to go to a non-unionized location abroad and to serve their country from a distance. A domestic government will set a positive tariff to dissuade its multinational from engaging in outward FDI when the additional profits it repatriates, do not compensate for the loss of domestic union rent. To put it differently, we show that when the domestic labor market is unionized, trade liberalisation between countries with similar wage levels is likely to result in domestic welfare losses as a result of outward FDI. Only when wage differences between countries are large enough, can outward FDI improve domestic welfare and optimal tariffs will be zero.
ISSN: 0923-7992
Publication status: published
KU Leuven publication type: IT
Appears in Collections:LICOS - Centre for Institutions and Economic Performance, Leuven
× corresponding author
# (joint) last author

Files in This Item:

There are no files associated with this item.

Request a copy


All items in Lirias are protected by copyright, with all rights reserved.

© Web of science