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Do Foreign Investors Care about Labor Market Regulations?

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  • Beata Smarzynska Javorcik

    ()

  • Mariana Spatareanu

    ()

Abstract

This study investigates whether labor market flexibility affects foreign direct investment (FDI) flows across 19 Western and Eastern European countries. The analysis uses firm level data on new investments undertaken during 1998-2001. The study employs a variety of proxies for labor market regulations reflecting the flexibility of individual and collective dismissals, the length of the notice period and the required severance payment along with controls for business climate characteristics. The results suggest that greater flexibility in the host country’s labor market in absolute terms or relative to that in the investor’s home country is associated with larger FDI inflows.

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Bibliographic Info

Paper provided by Department of Economics, Rutgers University, Newark in its series Working Papers Rutgers University, Newark with number 2005-005.

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Length: 34 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:run:wpaper:2005-005

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Keywords: Foreign Direct Investment; Labor Market Regulation; Firm-level data;

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  10. Smarzynska Javorcik, Beata, 1999. "Composition of Foreign Direct Investment and Protection of Intellectual Property Rights in Transition Economies," CEPR Discussion Papers 2228, C.E.P.R. Discussion Papers.
  11. Theodore H. Moran, 1998. "Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies in Transition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 53, July.
  12. Coughlin, Cletus C & Terza, Joseph V & Arromdee, Vachira, 1991. "State Characteristics and the Location of Foreign Direct Investment within the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 675-83, November.
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