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How important is employment protection legislation for Foreign Direct Investment flows in Central and Eastern European countries?

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Author Info
Markus Leibrecht
Johann Scharler

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Abstract

In this article we investigate empirically the importance of labour market conditions and in particular the role of employment protection legislation as determinants of bilateral Foreign Direct Investment (FDI). We find that FDI flows are significantly higher in countries with relatively low unit labour costs. We also find that employment protection legislation does not exert a statistically significant impact on FDI flows. Our results are consistent with the interpretation that transition economies attract FDI via low production costs whereas indirect costs related to the rigidity of the labour market are less relevant. Copyright (c) 2009 The Authors. Journal compilation (c) 2009 The European Bank for Reconstruction and Development.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0351.2009.00353.x
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Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 17 (2009)
Issue (Month): 2 (04)
Pages: 275-295
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Handle: RePEc:bla:etrans:v:17:y:2009:i:2:p:275-295

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  1. Liu, Zhiqiang, 2002. "Foreign Direct Investment and Technology Spillover: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 579-602, September. [Downloadable!] (restricted)
  2. Wolfgang Ochel, 2005. "Concepts and Measurement of Labour Market Institutions," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 3(4), pages 40-55, 01. [Downloadable!]
  3. Egger, Peter & Winner, Hannes, 2005. "Evidence on corruption as an incentive for foreign direct investment," European Journal of Political Economy, Elsevier, vol. 21(4), pages 932-952, December. [Downloadable!] (restricted)
  4. Peter Egger, . "On the Problem of Endogenous Unobserved Effects in the Estimation of Gravity Models," WIFO Working Papers 132, WIFO. [Downloadable!]
  5. Agnès Bénassy-Quéré & Nicolas Gobalraja & Alain Trannoy, 2007. "Tax and public input competition," Economic Policy, CEPR, CES, MSH, vol. 22, pages 385-430, 04. [Downloadable!] (restricted)
  6. Haaland, J.I. & Wooton, I., 2000. "Multinational Firms: Easy Come, Easy Go?," Papers 19/00, Norwegian School of Economics and Business Administration-.
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  7. Beata Smarzynska Javorcik & Mariana Spatareanu, 2005. "Do Foreign Investors Care about Labor Market Regulations?," Working Papers Rutgers University, Newark 2005-005, Department of Economics, Rutgers University, Newark. [Downloadable!]
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  8. Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2007. "Institutional Determinants of Foreign Direct Investment," The World Economy, Blackwell Publishing, vol. 30(5), pages 764-782, 05. [Downloadable!] (restricted)
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  9. Kai Carstensen & Farid Toubal, 2003. "Foreign Direct Investment in Central and Eastern European Countries: A Dynamic Panel Analysis," Kiel Working Papers 1143, Kiel Institute for the World Economy. [Downloadable!]
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  10. Demekas, Dimitri G. & Horvath, Balazs & Ribakova, Elina & Wu, Yi, 2007. "Foreign direct investment in European transition economies--The role of policies," Journal of Comparative Economics, Elsevier, vol. 35(2), pages 369-386, June. [Downloadable!] (restricted)
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