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The effect of EPL on the internationalization of small firms

Author

Listed:
  • Barbieri Teresa

    (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS), University of Torino, Italy;)

  • Devicienti Francesco

    (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and Collegio Carlo Alberto, University of Torino, Italy;)

  • Manello Alessandro

    (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS), University of Torino, Italy; IRCrES - CNR;)

  • Vannoni Davide

    (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and Collegio Carlo Alberto, University of Torino, Italy;)

Abstract

A broad economic literature has evaluated the impact of employment protection legislation (EPL) on various firm-level outcomes. We complement this literature by studying the effect of a reduction in employment protection on the internationalization of small firms. Exploiting a comprehensive survey on Italian firms, we assess how small firms' engagement in international activities has been affected by the 2012 Labor Market Reform, the so-called "Fornero Law", that reduced firing costs for firms above the 15-employee threshold. Using a difference-in-differences identification strategy, we find a positive effect of EPL retrenchment on small firms' inward and outward FDI, whereas we cannot identify an effect on their exporting activities. The evidence we provide shows that increasing labor market flexibilization attracts foreign capital and encourages firms' outward investment. We document minor heterogeneous effects by geographic areas but no heterogeneity across different sectors of economic activity. Finally, the positive effect on internationalization is greater in firms with a higher level of volatility.

Suggested Citation

  • Barbieri Teresa & Devicienti Francesco & Manello Alessandro & Vannoni Davide, 2022. "The effect of EPL on the internationalization of small firms," Working papers 078, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    • Handle: RePEc:tur:wpapnw:078
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    EPL; Internationalization; FDI; Small Firms; Labor Market Reform; Difference-in-differences;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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