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Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage and FDI

  • Gerda Dewit
  • Holger Gorg
  • Catia Montagna

This paper examines how employment protection legislation affects location decisions of multinationals. Based on a simple theoretical framework, we estimate an empirical model, using OECD-data on bilateral FDI-flows and employment protection indices. We find that, while an “unfavourable” employment protection differential between a domestic and a foreign location is inimical to foreign direct investment (FDI), a high domestic level of employment protection tends to discourage outward FDI. The results are in line with our conjecture that strict employment protection in the firm’s home country makes firms reluctant to relocate abroad and keeps them “anchored” at home.

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Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 145.

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Date of creation: Jul 2003
Date of revision:
Handle: RePEc:dun:dpaper:145
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  1. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2002. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," Working Papers 483, Research Seminar in International Economics, University of Michigan.
  2. Haaland, J.I. & Wooton, I., 2000. "Multinational Firms: Easy Come, Easy Go?," Papers 19/00, Norwegian School of Economics and Business Administration-.
  3. Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, vol. 87(3), pages 447-65, June.
  4. Gerda Dewit & Dermot Leahy & Catia Montagna, 2003. "Employment Protection and Globalisation in Dynamic Oligopoly," Dundee Discussion Papers in Economics 137, Economic Studies, University of Dundee.
  5. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
  6. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  7. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
  8. Barrell, Ray & Pain, Nigel, 1999. "Trade restraints and Japanese direct investment flows," European Economic Review, Elsevier, vol. 43(1), pages 29-45, January.
  9. Stephen Nickell & Luca Nunziata & Wolfgang Ochel & Glenda Quintini, 2001. "The Beveridge curve, unemployment and wages in the OECD from the 1960s to the 1990s - preliminary version," LSE Research Online Documents on Economics 20113, London School of Economics and Political Science, LSE Library.
  10. Dermot Leahy & Catia Montagna, 2001. "Temporary social dumping, union legalisation and FDI: a note on the strategic use of standards," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 9(3), pages 243-259.
  11. repec:rus:hseeco:121599 is not listed on IDEAS
  12. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
  13. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  14. Haaland, Jan I. & Wooton, Ian, 2002. "Multinational Investment, Industry Risk and Policy Competition," CEPR Discussion Papers 3152, C.E.P.R. Discussion Papers.
  15. Giuseppe Nicoletti & Steve Golub & Dana Hajkova & Daniel Mirza & Kwang-Yeol Yoo, 2003. "Policies and International Integration: Influences on Trade and Foreign Direct Investment," OECD Economics Department Working Papers 359, OECD Publishing.
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