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The effect of employment protection legislation on the internationalization of SMEs and their participation in global value chains

Author

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  • Barbieri, Teresa
  • Devicienti, Francesco
  • Manello, Alessandro
  • Vannoni, Davide

Abstract

A substantial body of economic literature has examined the impact of employment protection legislation (EPL) on various firm-level outcomes. We complement this literature by studying the impact of reducing employment protection on the internationalization of small and medium-sized enterprises (SMEs) and their participation in Global Value Chains (GVCs). Exploiting a comprehensive survey on Italian firms, we first assess how firms’ engagement in complex international activities has been affected by the 2012 Labor Market Reform, the so-called “Fornero Law”, which reduced firing costs for firms above the 15-employee threshold. Then, we evaluate the impact of the same reform on firms' participation and governance structure in global value chains. We find a positive effect of EPL retrenchment on complex international activities of SMEs. We also highlight that the positive effect on internationalization is greater in firms with a higher level of volatility. Finally, we find a positive effect of the reduction in EPL on firms’ participation in GVCs, particularly in a governance mode characterized by short-term relationships with foreign companies.

Suggested Citation

  • Barbieri, Teresa & Devicienti, Francesco & Manello, Alessandro & Vannoni, Davide, 2026. "The effect of employment protection legislation on the internationalization of SMEs and their participation in global value chains," Journal of Economic Behavior & Organization, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:jeborg:v:241:y:2026:i:c:s0167268125005050
    DOI: 10.1016/j.jebo.2025.107388
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    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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