Do Foreign Investors Care about Labor Market Regulations?

Javorcik, Beata Smarzynska; Spartareanu, Mariana

doi:10.1007/s10290-005-0035-7

Cited by 132 publications

(123 citation statements)

References 16 publications

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“…Haaland and Wooton (2002) and Haaland et al (2003) provide theoretical analyses that formalise the detrimental effect of employment protection on inward FDI. This result is supported empirically by Görg (2005) who finds that host countries' firing costs are negatively related to inward FDI from the US, Nicoletti et al (2003) who find that employment protection reduces FDI in OECD countries, and Javorcik and Spatareanu (2005) who find that labour market flexibility is positively associated with inward FDI in some Western and Eastern European countries. Dewit et al (2003) argue that the relationship between labour market flexibility and FDI is more subtle.…”

Section: Introductionmentioning

confidence: 81%

Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage

2009

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This paper examines theoretically and empirically how employment protection legislation affects location decisions of multinationals. We depart from the "conventional wisdom" by examining not only the effect of protection on inward foreign direct investment (FDI), but also a country's ability to "anchor" potential outward investment. Based on our simple theoretical framework, we estimate an empirical model, using data on bilateral FDI and employment protection indices for OECD countries, and controlling for other labour market institutions and investment costs. We find that, while an "unfavourable" employment protection differential between a domestic and a foreign location is inimical to FDI, a high domestic level of employment protection tends to discourage outward FDI. The results are in line with our conjecture that strict employment protection in the firm's home country makes firms reluctant to relocate abroad and keeps them "anchored" at home. JEL no. F23, J80, D80Keywords: foreign direct investment, employment protection, domestic anchorage, uncertainty Acknowledgements: We are grateful to Dana Hajkova and Daniel Mirza for help with the OECD data and to David Greenaway, Dermot Leahy, Hassan Molana and an anonymous referee for helpful comments.

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Section: Introductionmentioning

confidence: 81%

Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage

2009

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“…Generally speaking, empirical studies focus on the tightness of the employment protection legislation (EPL henceforth), the collective bargaining mechanisms, and the labour income taxation (typically, the tax wedge on labour). Görg (2002), Gross and Ryan (2004), Javorcik and Spatareanu (2005), and Nicoletti et al (2003) find empirical support to the idea that EPL and labour taxes adversely affect relative returns from investing in a country with a tight regulation, whereby discouraging FDIs. Lee (2003) observes, however, that the effects of EPL and labour income taxation on FDI may depend on the regime of industrial relations in place in each country.…”

Section: ) Labour-market Arrangements -A Wide Set Of Policies and Inmentioning

confidence: 99%

Attracting Foreign Direct Investments in Europe: Are Italian Regions Doomed?

2005

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During the nineties, Europe became a major recipient of FDIs but Italian regions have been largely excluded from this process. Was it due to their characteristics, or were Italian regions 'doomed' by a negative country effect? In this paper we address this issue by estimating the determinants of multinational firms' location choices in 52 EU regions. We find that Italian regions indeed attracted significantly less than their observable potential, and that this could be explained by the inefficiency of the bureaucratic apparatus and of the legal system. The effect of taxes is instead strongly sensitive to the inclusion of agglomeration variables and is asymmetric across regions. JEL Codes: F23, C35, O52

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“…Using OECD data, Dewitt, Görg and Montagna (2003) highlight that unfavorable employment protection differential between destination and origin countries is harmful for investment. Other studies suggest that more flexible labor markets in recipient countries are positively correlated to higher inflows of investment from abroad (Javorcik and Spatareanu 2005). On the other hand, locating in a country with a more regulated labor market could be associated with a firm's higher productivity: thus, some stages of production or certain sectors will tend to locate in more regulated labour markets (Haucap, Wey, and Barmbold 1997).…”

Section: Regulations Legal Environments and Government Interventionmentioning

confidence: 99%

Economic Institutions and the Location Strategies of European Multinationals in their Geographic Neighborhood

2016

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This article investigates how the location behavior of Multinational Enterprises (MNEs) is shaped by the economic institutions of the host countries. The analysis covers a wide set of geographically proximate economies with different degrees of integration with the 'Old' 15 European Union (EU) members: New Member States, Accession and Candidate Countries, as well as European Neighborhood Policy (ENP) countries and the Russian Federation. The article aims to shed new light on the heterogeneity of MNE preferences for the host countries' regulatory settings (including labor market and business regulation), legal aspects (i.e. protection of property rights and contract enforcement) and the weight of the government in the economy. By employing data on 6,888 greenfield investment projects, the random-coefficient Mixed Logit analysis shows that, while the quality of the national institutional framework is generally beneficial for the attraction of foreign investment, MNEs preferences over economic institutions are highly heterogeneous across sectors and business functions. JEL Classification: F23, P33, L20, R30.

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Do Foreign Investors Care about Labor Market Regulations?

Abstract: Foreign direct investment, labor market regulation, firm level data,

Cited by 132 publications

References 16 publications

Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage

Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage

Attracting Foreign Direct Investments in Europe: Are Italian Regions Doomed?

Economic Institutions and the Location Strategies of European Multinationals in their Geographic Neighborhood

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