Exports versus export-platform FDI with endogenous wage determination

In this paper, we explain why unionized MNFs in the same industry choose different entry modes between export and export-platform FDI when serving the same market. The platform-type FDI becomes more likely, ceteris paribus, with higher wage-oriented behavior by the unions, deeper trade liberalization in the host country, and lower fixed costs incurred in the FDI. Some of our results are counter-intuitive. It is particularly shown that a non-unionized MNF undertakes FDI whereas a unionized MNF remains in the domestic country even in the absence of productivity differences between the firms. Under certain conditions, trade liberalization in the host country might cause a complete reversal in the location pattern between unionized and non-unionized firms. Moreover, FDI induced by trade liberalization might hurt the domestic economy as a whole due to the loss of union rents and rival firms' profits, which provides a rationale for the use of lump-sum production subsidies as a government policy.