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

Listed author(s):
  • Dewit, Gerda

    ()

    (National University of Ireland, Maynooth)

  • Görg, Holger

    ()

    (Kiel Institute for the World Economy)

  • Montagna, Catia

    ()

    (University of Aberdeen)

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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File URL: http://ftp.iza.org/dp845.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 845.

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Length: 20 pages
Date of creation: Aug 2003
Publication status: published as 'Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage' in: Review of World Economics, 145 (1), 2009, 93-110
Handle: RePEc:iza:izadps:dp845
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  1. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2003. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," NBER Working Papers 9669, National Bureau of Economic Research, Inc.
  2. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  3. Dewit, Gerda & Dermot Leahy & Catia Montagna, 2003. "Employment protection and globalisation in dynamic oligopoly," Royal Economic Society Annual Conference 2003 57, Royal Economic Society.
  4. Haaland, Jan I. & Wooton, Ian, 2001. "Multinational Firms: Easy Come, Easy Go?," CEPR Discussion Papers 2660, C.E.P.R. Discussion Papers.
  5. 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.
  6. 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.
  7. Haaland, Jan I. & Wooton, Ian, 2002. "Multinational Investment, Industry Risk and Policy Competition," CEPR Discussion Papers 3152, C.E.P.R. Discussion Papers.
  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. 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 447-465, June.
  10. 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.
  11. 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.
  12. 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.
  13. repec:rus:hseeco:121599 is not listed on IDEAS
  14. 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.
  15. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-816, May.
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