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Government Partisanship, Unionization and the Structure of Investment Liberalization

Published online by Cambridge University Press:  16 September 2019

Jia Chen Open the ORCID record for Jia Chen [Opens in a new window]  and
Seungbin Park
Jia Chen*
Affiliation:
School of Public Economics and Administration, Shanghai University of Finance and Economics, 111 Wuchuan Road, 200433, Shanghai, China
Seungbin Park
Affiliation:
Department of Political Science, University of Alabama, Box 870213, Tuscaloosa, AL, 35487, US
*
*Corresponding author. E-mail: [email protected]
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Abstract

Governments in advanced industrial democracies generally regulate foreign direct investment (FDI) inflows with two types of policy measures: entry barriers and post-establishment restrictions. This article provides an integrated account for the two types of FDI restrictions, which is largely absent in the existing literature. We argue that the government's choice of FDI policies is shaped by a compound effect of the incumbent's ideological orientation and the political influence of unionized labour. Although inward FDI broadly benefits domestic workers, the entrance of multinational corporations (MNCs) adversely impacts the unionized interests of labour by transforming the labour market in ways detrimental to unions’ wage-bargaining leverage. Leftist governments, driven by the preferences of their labour constituency, tend to lift entry barriers to FDI in order to promote capital inflows. At the same time, leftist governments may also need to address unions’ concerns about inbound MNCs by tightening post-establishment restrictions on FDI, which impose constraints on the globalized business and operational model of MNCs. We argue that leftist incumbents generally liberalize entry barriers but tighten post-establishment restrictions when the level of labour unionization is high. We found evidence consistent with our argument from country-level and sector-level analysis of FDI restrictions, using a sample from the early 2000s to the mid-2010s of Organisation of Economic Co-operation and Development (OECD) countries.

Résumé

Dans les démocraties industrielles avancées, les gouvernements réglementent généralement les flux d'IED par deux types de mesures, à savoir les barrières à l'entrée et les restrictions postérieures à l'établissement. Le présent document fournit un compte rendu intégré des deux types de restrictions à l'IED, largement absent de la bibliographie existante. Nous soutenons que le choix des politiques du gouvernement en matière d'IED est déterminé par l'effet combiné de l'orientation idéologique du titulaire et de l'influence politique des syndicats. Bien que l'IED intérieur profite largement aux travailleurs domestiques, l'entrée des multinationales a un impact négatif sur l'intérêt syndiqué de la main-d'œuvre en transformant le marché du travail au détriment du pouvoir de négociation des syndicats sur les salaires. Poussés par la préférence de leur électorat ouvrier, les gouvernements de gauche ont tendance à lever les barrières à l'entrée de l'IED pour favoriser les entrées de capitaux. Dans l'intervalle, les gouvernements de gauche devront peut-être aussi répondre aux préoccupations des syndicats à l'égard des multinationales entrantes en resserrant les restrictions imposées à l'IED après la création d'entreprises qui imposent des contraintes au modèle commercial et opérationnel mondialisé des multinationales. Nous soutenons que les titulaires de gauche libéralisent généralement les barrières à l'entrée, mais resserrent les restrictions post-établissement lorsque le niveau de syndicalisation est élevé. Nous avons trouvé des éléments probants conformes à notre analyse des restrictions à l'IED au niveau des pays et des secteurs, à partir d'un échantillon de pays de l'OCDE du début des années 2000 au milieu des années 2010.

Keywords

Foreign direct investment (FDI)investment barriers and restrictionscollective wage-bargaininggovernment partisanshippolitical economy
Type
Research Article/Étude originale
Information
Canadian Journal of Political Science/Revue canadienne de science politique , Volume 52 , Issue 4 , December 2019 , pp. 825 - 846
Copyright
Copyright © Canadian Political Science Association (l'Association canadienne de science politique) and/et la Société québécoise de science politique 2019 

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