UGF Lecture 6

Management > Global Firm > Kojima > Case A > Case B > Conclusive remarks > Further analysis > Real Case A > Real Case B > Positive/Negative LAs

Positive and Negative LAs

The cases reveal that LAs can be positive or negative.

Positive LAs are expected when an MNE sets up a plant in a foreign country in order to improve efficiency of production. Positive LAs are to be complemented by the input OAs of the investing industry. The result should be increased welfare and trade creation.

FDI needs to occur to initiate this event, as OAs are mobile, while LAs are not. Elements like raw materials are literally immobile, but labour is arguably less static. However, due to barriers like immigration controls the market for skilled workers is immobile and thus becomes an LA.

Negative LAs are those which induce the transfer of OAs from a more efficient to a less efficient location in order to defend a market and protect profitability. Any form of tariff or barrier on trade is relevant.