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How important is employment protection legislation for Foreign Direct Investment flows in Central and Eastern European countries?

  • Markus Leibrecht
  • Johann Scharler

In this article we investigate empirically the importance of labour market conditions and in particular the role of employment protection legislation as determinants of bilateral Foreign Direct Investment (FDI). We find that FDI flows are significantly higher in countries with relatively low unit labour costs. We also find that employment protection legislation does not exert a statistically significant impact on FDI flows. Our results are consistent with the interpretation that transition economies attract FDI via low production costs whereas indirect costs related to the rigidity of the labour market are less relevant. Copyright (c) 2009 The Authors. Journal compilation (c) 2009 The European Bank for Reconstruction and Development.

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Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 17 (2009)
Issue (Month): 2 (04)
Pages: 275-295

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Handle: RePEc:bla:etrans:v:17:y:2009:i:2:p:275-295
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  8. Egger, Peter, 2004. "On the Problem of Endogenous Unobserved Effects in the Estimation of Gravity Models," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 19, pages 182-191.
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