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Labor Market Rigidity And Foreign Direct Investment: The Case Of Europe

  • Mogab, J.
  • Kishan, R.
  • Vacaflores, D.E.
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    This paper examines the relationship between labor market rigidity and FDI decisions by Europeans multi-nationals firms during 2004-2008. We use firm-level data for European Multinational Enterprises investment in 41 European countries during these four years. Using conditional fixed effect logit and Tobit estimations, we show that European MNEs generally respond to regulatory, gravity and firm specific indicators in the expected ways, but their responses to changes in labor market institutions are less consistent. We also find that the relationship between MNEs location decision and host country’s labor market institutional factors is sensitive to host country’s development stage and market integration with the EU countries.

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    Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

    Volume (Year): 13 (2013)
    Issue (Month): 1 ()
    Pages: 35-54

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    Handle: RePEc:eaa:aeinde:v:13:y:2013:i:1_4
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    1. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
    2. 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, vol. 17(2), pages 275-295, 04.
    3. William W. Olney, 2010. "A Race to the Bottom? Employment Protection and Foreign Direct Investment," Center for Development Economics 2011-05, Department of Economics, Williams College, revised Aug 2013.
    4. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
    5. 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, vol. 145(1), pages 93-110, April.
    6. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
    7. Hazel Parcon, 2008. "Labor Market Flexibility as a Determinant of FDI Inflows," Working Papers 200807, University of Hawaii at Manoa, Department of Economics.
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