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Does the impact of employment protection legislation on FDI differ by skill-intensity of sectors? An empirical investigation

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  • Markus Leibrecht
  • Christian Bellak

Abstract

In line with previous literature this paper finds that employment protection legislation, especially regulations towards regular employment, has a negative impact on the volume of inward Foreign Direct Investment. Yet, we also find that the deterrent effect of inflexible labor markets is predominantly given for industries with relatively high shares of low skilled workers employed. This result is consistent with the view that high exit costs due to strict employment protection legislation matters particularly for mobile industries like the textile, food and wood industries which continuously seek for low labor cost locations.

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File URL: http://www.nottingham.ac.uk/gep/documents/papers/2009/09-21.pdf
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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 09/21.

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Handle: RePEc:not:notgep:09/21

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Keywords: Foreign Direct Investment; Labour Market; OECD; Panel Econometrics;

References

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  1. Beata Smarzynska Javorcik & Mariana Spatareanu, 2005. "Do Foreign Investors Care about Labor Market Regulations?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 141(3), pages 375-403, October.
  2. Bevan, Alan A. & Estrin, Saul, 2004. "The determinants of foreign direct investment into European transition economies," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 775-787, December.
  3. Christian Bellak & Markus Leibrecht & Jože P. Damijan, 2009. "Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 32(2), pages 267-290, 02.
  4. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, Elsevier, vol. 68(3), pages 335-367, June.
  5. Mutti, John & Grubert, Harry, 2004. "Empirical asymmetries in foreign direct investment and taxation," Journal of International Economics, Elsevier, Elsevier, vol. 62(2), pages 337-358, March.
  6. Markus Leibrecht & Johann Scharler, 2009. "How important is employment protection legislation for Foreign Direct Investment flows in Central and Eastern European countries?," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 17(2), pages 275-295, 04.
  7. Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2007. "Institutional Determinants of Foreign Direct Investment," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 30(5), pages 764-782, 05.
  8. Ronald B. Davies, 2002. "Hunting High and Low for Vertical FDI," University of Oregon Economics Department Working Papers, University of Oregon Economics Department 2002-12, University of Oregon Economics Department, revised 01 Aug 2002.
  9. Mollick Andre Varella & Ramos-Duran Rene & Silva-Ochoa Esteban, 2006. "Infrastructure and FDI Inflows into Mexico: A Panel Data Approach," Global Economy Journal, De Gruyter, De Gruyter, vol. 6(1), pages 1-27, February.
  10. Haaland, Jan I. & Wooton, Ian, 2001. "Multinational Firms: Easy Come, Easy Go?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2660, C.E.P.R. Discussion Papers.
  11. Peter E. Kennedy, 2005. "Oh No! I Got the Wrong Sign! What Should I Do?," The Journal of Economic Education, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(1), pages 77-92, January.
  12. Michael Peneder, 2007. "A sectoral taxonomy of educational intensity," Empirica, Springer, Springer, vol. 34(3), pages 189-212, July.
  13. Buch, Claudia M. & Lipponer, Alexander, 2007. "FDI versus exports: Evidence from German banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(3), pages 805-826, March.
  14. Dennis J. Snower & Alessio J. G. Brown & Christian Merkl, 2009. "Globalization and the Welfare State: A Review of Hans-Werner Sinn's Can Germany Be Saved?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 47(1), pages 136-58, March.
  15. Roxana Radulescu & Martin Robson, 2008. "Trade Unions, Wage Bargaining Coordination, and Foreign Direct Investment," LABOUR, CEIS, CEIS, vol. 22(4), pages 661-678, December.
  16. Agnès Bénassy-Quéré & Nicolas Gobalraja & Alain Trannoy, 2007. "Tax and public input competition," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 22, pages 385-430, 04.
  17. José Guimón, 2009. "Government strategies to attract R&D-intensive FDI," The Journal of Technology Transfer, Springer, Springer, vol. 34(4), pages 364-379, August.
  18. Isabel Faeth, 2009. "Determinants Of Foreign Direct Investment - A Tale Of Nine Theoretical Models," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 23(1), pages 165-196, 02.
  19. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C1-33, March.
  20. James R. Markusen & Keith E. Maskus, 1999. "Discriminating Among Alternative Theories of the Multinational Enterprise," NBER Working Papers 7164, National Bureau of Economic Research, Inc.
  21. Gross, Dominique M. & Ryan, Michael, 2008. "FDI location and size: Does employment protection legislation matter?," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 38(6), pages 590-605, November.
  22. Gerda Dewit & Holger Görg & Catia Montagna, 2009. "Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 145(1), pages 93-110, April.
  23. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, Elsevier, vol. 8(2), pages 131-159, May.
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