Unionzed Oligopoly, Trade Liberalization and Location Choice

In a two-country reciprocal dumping model, with on country unionized, we analyze 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 can not prevail in a corresponding, non-unionzed model. Trade liberalization ha 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.