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Domestic Labour Markets and Foreign Direct Investment

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  • Haaland, Jan I.
  • Wooton, Ian

Abstract

We study how the labour market and industry uncertainty affect the investment decisions of multinational enterprises (MNEs). In an uncertain business climate, MNEs must take account of the future in deciding where to locate a branch plant. When wages are endogenously determined, both the opportunity cost of labour and redundancy payments influence the MNE’s decision. When countries compete for foreign investment, different national characteristics determine the winners in different industries. Differences in risk may draw MNEs to different locations. Firm-specific bargaining always offers an advantage, as the mix of current and future pay fully reflects the firm’s risk profile.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3989.

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Date of creation: Jul 2003
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Handle: RePEc:cpr:ceprdp:3989

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Keywords: entry; exit; investment subsidies; multinational firms; uncertainty;

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References

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  1. Haaland, Jan I. & Wooton, Ian, 2002. "Multinational Investment, Industry Risk and Policy Competition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3152, C.E.P.R. Discussion Papers.
  2. Lommerud, Kjell Erik & Meland, Frode & Sørgard, Lars, 2001. "Unionized Oligopoly, Trade Liberalization and Location Choice," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2990, C.E.P.R. Discussion Papers.
  3. Sebastian Kessing, 2004. "Employment Protection And Product Market Competition," Royal Economic Society Annual Conference 2004, Royal Economic Society 50, Royal Economic Society.
  4. Haaland, Jan I & Wooton, Ian, 1999. " International Competition for Multinational Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 631-49, December.
  5. Lommerud, Kjell Erik & Sørgard, Lars & Straume, Odd Rune, 2003. "National versus International Mergers in Unionised Oligopoly," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4040, C.E.P.R. Discussion Papers.
  6. Jan I. Haaland & Ian Wooton & Giulia Faggio, 2002. "Multinational Firms: Easy Come, Easy Go?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 59(1), pages 3-, February.
  7. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
  8. Gilles Saint-Paul, 1996. "Employment Protection, International Specialization, and innovation," IMF Working Papers 96/16, International Monetary Fund.
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  10. Haskel, Jonathan & Pereira, Sonia & Slaughter, Matthew, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3384, C.E.P.R. Discussion Papers.
  11. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 1999. "Competing for Capital in a 'Lumpy' World," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2188, C.E.P.R. Discussion Papers.
  12. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
  13. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  14. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
  15. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  16. Gerda Dewit & Dermot Leahy & Catia Montagna, 2003. "Employment Protection and Globalisation in Dynamic Oligopoly," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 137, Economic Studies, University of Dundee.
  17. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(3), pages 699-726, August.
  18. Saint-Paul, G., 1995. "Is Labour Rigidity Harming Europe's Competitiveness? The Effect of Job Protection on the Pattern of Trade and Welfare," DELTA Working Papers, DELTA (Ecole normale supérieure) 95-38, DELTA (Ecole normale supérieure).
  19. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
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Citations

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Cited by:
  1. Zierahn, Ulrich, 2011. "Regional unemployment and new economic geography," HWWI Research Papers 105, Hamburg Institute of International Economics (HWWI).
  2. Lommerud, Kjell Erik & Meland, Frode & Rune Straume, Odd, 2006. "Globalisation and union opposition to technological change," Journal of International Economics, Elsevier, vol. 68(1), pages 1-23, January.
  3. Céline Azémar & Rodolphe Desbordes, 2009. "Short-run strategies for attracting Foreign Direct Investment," Working Papers, Business School - Economics, University of Glasgow 2009_24, Business School - Economics, University of Glasgow.
  4. Maria Bas & Juan Carluccio, 2010. "Wage Bargaining and the Boundaries of the Multinational Firm," Working Papers 2010-03, CEPII research center.
  5. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 10(2), pages 225-254, 04.
  6. Rachel Griffith & Gareth Macartney, 2010. "Employment protection legislation, multinational firms and innovation," IFS Working Papers, Institute for Fiscal Studies W10/01, Institute for Fiscal Studies.
  7. Rita K. Almeida & Z. Bilgen Susanlı, 2012. "Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 16(4), pages 540-558, November.
  8. Jan Jaap Hazenberg, 2012. "Independence and focus of Luxembourg UCITS fund boards," CREA Discussion Paper Series 12-15, Center for Research in Economic Analysis, University of Luxembourg.
  9. Vincent Delbecque & Isabelle Méjean & Lise Patureau, 2014. "Labor market institutions and firms’ location choices," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 150(1), pages 115-148, February.

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