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How Important is Employment Protection Legislation for Foreign Direct Investment Flows in Central and Eastern European Countries?

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  • Markus Leibrecht
  • Johann Scharler

Abstract

The purpose of this paper is to investigate empirically the importance of labor market conditions and in particular of employment protection legislation as a determinant of bilateral Foreign Direct Investment flows to seven Central and Eastern European countries. Although our results indicate that countries characterized by low unit labor costs tend to attract more Foreign Direct Investment, we find no evidence suggesting that employment protection legislation matters in this context. This result also holds if we control for the riskiness of the host countries.

Suggested Citation

  • Markus Leibrecht & Johann Scharler, 2007. "How Important is Employment Protection Legislation for Foreign Direct Investment Flows in Central and Eastern European Countries?," Economics working papers 2007-16, Department of Economics, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:econwp:2007_16
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    2. Masahiro Tokunaga & Ichiro Iwasaki, 2017. "The Determinants of Foreign Direct Investment in Transition Economies: A Meta-analysis," The World Economy, Wiley Blackwell, vol. 40(12), pages 2771-2831, December.
    3. Mogab, J. & Kishan, R. & Vacaflores, D.E., 2013. "Labor Market Rigidity And Foreign Direct Investment: The Case Of Europe," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(1), pages 35-54.
    4. Mina, Wasseem & Jaeck, Louis, 2015. "Labor Market Flexibility and FDI Flows: Evidence from Oil-Rich GCC and Middle Income Countries," MPRA Paper 62652, University Library of Munich, Germany.
    5. Antonio Baez‐Morales, 2021. "A panel data analysis of FDI and informal labour markets," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 346-363, July.
    6. Eichhorst, Werner & Colussi, Tommaso & Guzi, Martin & Kahanec, Martin & Lichter, Andreas & Nikolova, Milena & Sommer, Eric, 2017. "People to Jobs, Jobs to People: Global Mobility and Labor Migration," IZA Research Reports 74, Institute of Labor Economics (IZA).
    7. Dimitar NIKOLOSKI, 2017. "The impact of Foreign Direct Investments on employment: the case of the Macedonian manufacturing sector," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 8, pages 147-165, December.
    8. Jayjit Roy, 2016. "Employment Protection Legislation and International Trade," Working Papers 16-06, Department of Economics, Appalachian State University.
    9. Antonio Baez, 2014. "“A panel data analysis of FDI and informal labor markets”," IREA Working Papers 201404, University of Barcelona, Research Institute of Applied Economics, revised Feb 2014.
    10. Roy, Jayjit, 2021. "The effect of employment protection legislation on international trade," Economic Modelling, Elsevier, vol. 94(C), pages 221-234.
    11. Krzywdzinski, Martin, 2014. "Do investors avoid strong trade unions and labour regulation? Social dumping in the European automotive and chemical industries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 28(6), pages 926-945.
    12. Gerda Dewit & Dermot Leahy & Catia Montagna, 2013. "Employment Protection, Flexibility and Firms' Strategic Location Decisions under Uncertainty," Economica, London School of Economics and Political Science, vol. 80(319), pages 441-474, July.
    13. Branimir Jovanovic & Biljana Jovanovic, 2018. "Ease of doing business and FDI in the ex-socialist countries," International Economics and Economic Policy, Springer, vol. 15(3), pages 587-627, July.
    14. Iwasaki, Ichiro & 岩﨑, 一郎 & Tokunaga, Masahiro, 2019. "The Determinants and Macroeconomic Impacts of Foreign Direct Investment in Transition Economies," CEI Working Paper Series 2019-8, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    15. Markus Leibrecht & Christian Bellak, 2023. "Investment policy reform as a driver of foreign direct investment: Evidence from China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(4), pages 1035-1053, October.
    16. Ogbeifun Lawrence & Shobande Olatunji Abdul, 2020. "Causality Analysis of Disaggregated FDI Inflows on Sectorial Growth in OECD Area," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(4), pages 92-110, December.
    17. Bettina Becker & Nigel Driffield & Sandra Lancheros & James H. Love, 2020. "FDI in hot labour markets: The implications of the war for talent," Journal of International Business Policy, Palgrave Macmillan, vol. 3(2), pages 107-133, June.
    18. Dewit, Gerda & Leahy, Dermot & Montagna, Catia, 2012. "Employment Protection, Flexibility and Firms’ Strategic Location Decisions under Uncertainty," SIRE Discussion Papers 2012-24, Scottish Institute for Research in Economics (SIRE).
    19. Markus Leibrecht & Christian Bellak, 2009. "Does the impact of employment protection legislation on FDI differ by skill-intensity of sectors? An empirical investigation," Discussion Papers 09/21, University of Nottingham, GEP.
    20. Tokunaga, Masahiro & Iwasaki, Ichiro, 2014. "Transition and FDI: A Meta-Analysis of the FDI Determinants in Transition Economies," RRC Working Paper Series 47, Russian Research Center, Institute of Economic Research, Hitotsubashi University.

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    More about this item

    Keywords

    Foreign Direct Investment; Central and Eastern Europe; Labor Market; Employment Protection;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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