A race to the bottom? Employment protection and foreign direct investment

Olney, William W.

doi:10.1016/j.jinteco.2013.08.003

Cited by 185 publications

(125 citation statements)

References 23 publications

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“…While their paper also uses micro data, they do not study affiliates engaged in international trade with neighboring countries which is an essential feature in our model. Azemar and Desbordes (2010) and Olney (2012) share our approach of disaggregating the sales activities of the MNEs, but the data used are country-level aggregates (for US firms).…”

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confidence: 99%

“…However, since Olney (2012) and Azemar and Desbordes (2010) use aggregate data, they cannot identify the effects of more stringent EPL on the extensive margin of FDI. This can only be done with the with affiliate level data which are used in our study.…”

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confidence: 99%

“…In Azemar and Desbordes (2010) and Olney (2012), it is also suggested that the differential effect of more stringent EPL on affiliate exports and local sales arises because affiliate production for exports is more mobile than affiliate production for local sales. This suggestion rests on the effect of more stringent EPL on the extensive margin of FDI and hence cannot be explored in their data.…”

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confidence: 99%

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Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data

2012

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn this paper we show, theoretically and empirically, that stronger employment protection legislation (EPL) in a host country has important and differing effects on the various activities of multinational enterprises (MNEs). Using micro data on affiliates to Swedish multinational firms in 20 countries for the period of 1965-1998, we find that increased stringency in EPL is associated with fewer investments in new affiliates and lower employment in existing affiliates. We also find that it is mainly affiliate exports that are affected negatively by stronger EPL, while the impact on local sales is small. This is in accordance with our theoretical model, which predicts that the impact of EPL on the costs of competing firms is likely to put affiliates at a smaller disadvantage when selling for the local market than in the production for exports. JEL Classifications F23, J8, C20

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Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data

2012

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“…For example, they may crowd-out domestic companies and curtail employment (Jude & Silaghi, 2016), create chasms between investing and recipient countries when technological transfers fail to materialize (Görg & Greenaway, 2004), and increase regional disparities within recipient countries (Chen et al, 1995;Ran et al, 2007). Moreover, negative externalities can arise if countries engage in a 'race to the bottom' regarding labor, environmental, and tax standards to attract FDI (Davies & Vadlamannati, 2013;Olney, 2013;Danladi & Akmolofe, 2013).…”

Section: Introductionmentioning

confidence: 99%

Natural Resource-Seeking FDI Inflows and Current Account Deficits in Commodity-Producing Developing Economies

Ballesteros

Goda

2017

SSRN Journal

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“…Even though the values on regular contracts are assumed to be the core component of the overall index by OECD sources (OECD, 2013), taking into account the temporary contract index is also crucial. When the index is closely examined, it can be observed that the most of the changes in the composite index is a source of the variation in the temporary the labour market, such as Tridico (2012) and Olney (2013).This indicator is accepted as an objective and consistent estimate of employment protection legislation. The changes in its level are assumed to be a sign for the changes in the legislation and policies.…”

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Fiscal Stimulus and Labor Market Flexibility

Topal

2014

SSRN Journal

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The current global economic and financial crisis has drawn the attention of the academic and policy circle to the role and efficiency of fiscal policy and brought it to the center of the debate. As nominal interest rates reached the zero lower bound and the traditional monetary transmission mechanism failed to deal with the demand contraction, fiscal stimulus packages have been suggested as a better tool to boost economies and encounter the remedies of the experienced downturn. Thus, the large-scale fiscal stimulus packages have been implemented around the globe. A closer look at the composition of these packages suggests that the advanced economies strongly focused on labour market measures to cushion the fall in economic output and employment by following the policy advices on necessity of labour market deregulation.Despite of the ongoing debate on the efficiency of fiscal policy implications and labour market reforms, there is no clear consensus about their effectiveness. None of the existing studies has investigated on this issue so far and focused on both the ability of government expenditure shocks to boost output and reduce unemployment and its effectiveness on different labour market institutions. To fill the gap, this paper contributes to the literature by investigating whether fiscal stimulus impact differs for flexible and rigid labour markets. This question is crucial to be answered in order to understand the role of different labour market structures in determining the success of fiscal stimulus. By proxying the flexibility of labour markets with employment protection legislation indicator of OECD, I study whether government spending shocks are able to stimulate economic growth more in the markets with weaker employment protections than the ones with stricter regulations and additionally the impact of fiscal stimulus on unemployment.My empirical results indicate significant differences between rigid and flexible labour markets regarding the impact of the fiscal stimulus on output and unemployment. While the impulse response of real GDP to a government spending shock is positive and more effective in flexible labour markets, it has less impact in the rigid ones. The results show that as the labour markets get more flexible, the impact on the output gets more persistent. It is also found that fiscal stimulus leads to higher overall unemployment in highly regulated countries. This finding confirms the evidence from the existing literature implying that rigid labour market structure is associated with low job creation rate for the unemployed individuals and increasing labour market flexibility has a significant negative effect on unemployment rate. As labour markets get flexible, government expenditure shocks trigger a stronger increase in the new job creation rate, which leads to reduction in the overall unemployment.My findings emphasize that fiscal stimulus may not be able to help rigid labour markets in boosting the economic growth and reducing the unemployment rate. As high employment protections i...

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A race to the bottom? Employment protection and foreign direct investment

Cited by 185 publications

References 23 publications

Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data

Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data

Natural Resource-Seeking FDI Inflows and Current Account Deficits in Commodity-Producing Developing Economies

Fiscal Stimulus and Labor Market Flexibility

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