Abstract
[full article and abstract in English]
 The present work analyzes the effects of goods and capital market integration on welfare. In an imperfectly competitive industry with unionized labor, openness to competition via exports, the possibility of holding minority stakes into a rival company and undertaking Greenfield Foreign Direct Investment (FDI) exemplify product and capital market liberalization, respectively. Challenging the “lieu commune” that liberalization a priori improves the social welfare of an economy, making use of a game-theoretic approach, it is shown that a domestic government should design the appropriate interventions in product and capital markets depending on the precise pattern of economic integration.
Highlights
Economic theory has traditionally stressed the potential gains that countries have when participating in international integration; empirical data related to historical trends seem to prove that the integration of markets has been one of the main drivers of worldwide economic wealth growth.Despite the undeniable benefits of product and capital market integration, in the aftermath of the 2008 global financial and subsequent economic crisis, several governments started questioning the effectiveness of the globalization process
In the presence of labor unions that are sufficiently wage-oriented, consumers’ surplus and social welfare is positively correlated with cross-ownership, the share of cross-participation lessens the degree of product market competition
The analysis introduces a foreign firm competing in the domestic market to exemplify product market integration: the market moves from a monopoly to a Cournot duopoly
Summary
Economic theory has traditionally stressed the potential gains that countries have when participating in international integration; empirical data related to historical trends seem to prove that the integration of markets has been one of the main drivers of worldwide economic wealth growth (see, e.g., Dreher 2006). On the other hand, Fanti (2014) extends his previous model and investigates the consequences of an increase in the cross-ownership share with monopoly unions active at the firm level in a Cournot duopoly with homogeneous goods, pointing out the impact of a unionized labor market on overall social welfare. In the presence of labor unions that are sufficiently wage-oriented, consumers’ surplus and social welfare is positively correlated with cross-ownership, the share of cross-participation lessens the degree of product market competition. If a monopoly union characterizes the labor market, the foreign firm’s ownership of a minority stake in the domestic firm can be welfare-damaging for the domestic country after product market integration.
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