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FDI Deregulation Versus Labor Market Reform: a Political Economy Approach

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  • Louis Jaeck

    (United Arab Emirates University
    Aix-Marseille University (AMU))

  • Sehjeong Kim

    (United Arab Emirates University)

Abstract

This paper studies the political economy of foreign direct investment (FDI) in interaction with labor market policies. It analyzes the setting of reform focused on deregulating labor markets as a political compromise pressured by the lobbying of an industry lobby and a trade union. Using a common agency model of lobbying, we show that the interest group’s influence is socially distortive towards less deregulation. Also, our political economy framework shows that, for large countries, exogenous FDI liberalization policies lead to deregulation in the labor market. For small countries, such policies enhance more labor market rigidities.

Suggested Citation

  • Louis Jaeck & Sehjeong Kim, 2018. "FDI Deregulation Versus Labor Market Reform: a Political Economy Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(1), pages 73-89, March.
    • Handle: RePEc:kap:atlecj:v:46:y:2018:i:1:d:10.1007_s11293-018-9570-1
    DOI: 10.1007/s11293-018-9570-1
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