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Employment-protecting Labour Market Institutions and Inward Foreign Direct Investments


  • Minas Vlassis


This paper proposes labour market institutional arrangements as a strategic device to induce or deter export-substituting inward foreign direct investments (FDI) - in either instance protecting domestic employment. In a union-oligopoly context it is shown that, if the FDI-associated unit costs (FC) are not high enough, then employment-neutral (-enhancing) inward FDI will emerge in equilibrium if the domestic wage setting is credibly centralized and the unemployment benefit is sufficiently high (low), each instance arising for a different range of - intermediate - FC values. If however the FC values are sufficiently high, then the centralized structure of wage setting along with a low enough unemployment benefit will deter employment-reducing inward FDI. Copyright 2009 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

Suggested Citation

  • Minas Vlassis, 2009. "Employment-protecting Labour Market Institutions and Inward Foreign Direct Investments," LABOUR, CEIS, vol. 23(4), pages 677-696, December.
  • Handle: RePEc:bla:labour:v:23:y:2009:i:4:p:677-696

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