Social Competition and Firms' Location Choices
The paper evaluates the empirical effect of labor market institutions on foreign direct investment (FDI) decisions. To that aim, a firm-level dataset is used, that describes French firms’ expansion strategies abroad over the 1992-2002 period. Following Head and Mayer (2004b), the determinants of individual FDI decisions are estimated by implementing a discrete choice model on all possible foreign locations. The estimated equation is derived from a partialequilibrium model combining elements of the new economic geography literature and the labor market literature. We find that labor market institutions do impact French firms’ location decisions. Our overall results suggest that labor market rigidity puts a brake on the host country’s attractiveness. More detailed analysis shows that the estimated effects depend on the sample of countries considered as potential locations. French firms are found to be much more sensitive to the design of labor market institutions when FDI decisions take place within the set of industrialized OECD countries.
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- Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2007.
"Institutional Determinants of Foreign Direct Investment,"
The World Economy,
Wiley Blackwell, vol. 30(5), pages 764-782, 05.
- Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2005. "Institutional Determinants of Foreign Direct Investment," Working Papers 2005-05, CEPII research center.
- Pierre Cahuc & AndrÃ© Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
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