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Should I stay or should I go? A note on employment protection, domestic anchorage, and FDI

Author

Listed:
  • Dewit, G.

    (National University of Ireland Maynooth)

  • Holger, G.

    (University of Nottingham and IZA Bonn)

  • Montagna, C.

    (University of Dundee and GEP University of Nottingham)

Abstract

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.

Suggested Citation

  • Dewit, G. & Holger, G. & Montagna, C., 2003. "Should I stay or should I go? A note on employment protection, domestic anchorage, and FDI," Economics Department Working Paper Series n1291003, Department of Economics, National University of Ireland - Maynooth.
    • Handle: RePEc:may:mayecw:n1291003
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    Cited by:

    1. Pierre, Gaelle & Scarpetta, Stefano, 2004. "Employment regulations through the eyes of employers - do they matter and how do firms respond to them?," Policy Research Working Paper Series 3463, The World Bank.
    2. Pierre, Gaelle & Scarpetta, Stefano, 2007. "How labor market policies can combine workers'protection with job creation : a partial review of some key issues and policy options," Social Protection Discussion Papers and Notes 41439, The World Bank.
    3. Holger Görg, 2005. "Fancy a Stay at the ‘Hotel California’? The Role of Easy Entry and Exit for FDI," Kyklos, Wiley Blackwell, vol. 58(4), pages 519-535, November.
    4. Maria Borga & Perla Ibarlucea Flores & Monika Sztajerowska, 2020. "Drivers of divestment decisions of multinational enterprises - A cross-country firm-level perspective," OECD Working Papers on International Investment 2019/03, OECD Publishing.
    5. Méjean, Isabelle & Patureau, Lise, 2010. "Firms' location decisions and minimum wages," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 45-59, January.

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    More about this item

    Keywords

    Uncertainty; employment protection; foreign direct investment; domestic anchorage;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General

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