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Domestic Labour Markets and Foreign Direct Investment

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  • Haaland, Jan I.
  • Wooton, Ian

Abstract

We study how the labour market and industry uncertainty affect the investment decisions of multinational enterprises (MNEs). In an uncertain business climate, MNEs must take account of the future in deciding where to locate a branch plant. When wages are endogenously determined, both the opportunity cost of labour and redundancy payments influence the MNE?s decision. When countries compete for foreign investment, different national characteristics determine the winners in different industries. Differences in risk may draw MNEs to different locations. Firm-specific bargaining always offers an advantage, as the mix of current and future pay fully reflects the firm?s risk profile.

Suggested Citation

  • Haaland, Jan I. & Wooton, Ian, 2003. "Domestic Labour Markets and Foreign Direct Investment," CEPR Discussion Papers 3989, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3989
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    Cited by:

    1. Maria Bas & Juan Carluccio, 2009. "Wage Bargaining and the Boundaries of the Multinational Firm," CEP Discussion Papers dp0963, Centre for Economic Performance, LSE.
    2. Céline Azémar & Rodolphe Desbordes, 2010. "Short‐run Strategies for Attracting Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 33(7), pages 928-957, July.
    3. Ivan T. Kandilov & Mine Z. Senses, 2016. "The effects of wrongful discharge protection on foreign multinationals: Evidence from transaction‐level data," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 111-146, February.
    4. Simone Moriconi & Pierre M. Picard & Skerdilajda Zanaj, 2019. "Commodity taxation and regulatory competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 919-965, August.
    5. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, April.
    6. Carluccio, Juan & Bas, Maria, 2015. "The impact of worker bargaining power on the organization of global firms," Journal of International Economics, Elsevier, vol. 96(1), pages 162-181.
    7. Lommerud, Kjell Erik & Meland, Frode & Rune Straume, Odd, 2006. "Globalisation and union opposition to technological change," Journal of International Economics, Elsevier, vol. 68(1), pages 1-23, January.
    8. Alamá-Sabater, Luisa & Heid, Benedikt & Jiménez-Fernández, Eduardo & Márquez-Ramos, Laura, 2016. "What drives interdependence of FDI among host countries? The role of geographic proximity and similarity in public debt," Economic Modelling, Elsevier, vol. 58(C), pages 466-474.
    9. Rita K. Almeida & Z. Bilgen Susanlı, 2012. "Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 540-558, November.
    10. Zierahn, Ulrich, 2011. "Regional unemployment and new economic geography," HWWI Research Papers 105, Hamburg Institute of International Economics (HWWI).
    11. Vincent Delbecque & Isabelle Méjean & Lise Patureau, 2014. "Labor market institutions and firms’ location choices," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(1), pages 115-148, February.
    12. Rachel Griffith & Gareth Macartney, 2014. "Employment Protection Legislation, Multinational Firms, and Innovation," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 135-150, March.
    13. Burcu ŞENALP, 2018. "Foreign Direct Investment, Economic Growth and Economic Freedom: A Literature Survey," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 68(2), pages 301-336, December.
    14. Geleilate, José-Mauricio G. & Magnusson, Peter & Parente, Ronaldo C. & Alvarado-Vargas, Marcelo J., 2016. "Home Country Institutional Effects on the Multinationality–Performance Relationship: A Comparison Between Emerging and Developed Market Multinationals," Journal of International Management, Elsevier, vol. 22(4), pages 380-402.
    15. Méjean, Isabelle & Patureau, Lise, 2010. "Firms' location decisions and minimum wages," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 45-59, January.
    16. Kluge, Jan & Lappoehn, Sarah & Plank, Kerstin, 2020. "The Determinants of Economic Competitiveness," IHS Working Paper Series 24, Institute for Advanced Studies.
    17. Duanmu, Jing-Lin, 2014. "A race to lower standards? Labor standards and location choice of outward FDI from the BRIC countries," International Business Review, Elsevier, vol. 23(3), pages 620-634.

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    More about this item

    Keywords

    Multinational firms; Investment subsidies; Entry; Exit; Uncertainty;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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