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The impact of employment protection on FDI at different stages of economic development

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  • Sulistiyo K. Ardiyono
  • Arianto A. Patunru

Abstract

There has been much debate on how to design employment protection regulations that balance the need to attract FDI on the one hand and to protect workers’rights on the other hand.This study explores this ‘dilemma’, using a multi-country dataset for2003to 2015and treating hiring and firing regulation and the other explanatory variables as endogenous.The findings indicate that flexible hiring and firing regulations (HFRs) is essential for FDI promotion in the early stages of economic development of a country; but the impact of labour market flexibility on FDI gradually decreases and eventually turns statistically insignificant with economic advancement. In other words, a flexible HFRs are more important for developing countries, but such flexibility does not have to be sustained in a ‘race to the bottom’ manner: once a country reaches higher income levels, it has more room to focus on labour standards to protect workers without compromising on the attractiveness of the country for FDI.

Suggested Citation

  • Sulistiyo K. Ardiyono & Arianto A. Patunru, 2021. "The impact of employment protection on FDI at different stages of economic development," Departmental Working Papers 2021-18, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2021-18
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    File URL: https://acde.crawford.anu.edu.au/sites/default/files/publication/acde_crawford_anu_edu_au/2021-07/acde_td_ardiyono-patunru_2021_18.pdf
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    Cited by:

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    2. Ardiyono, Sulistiyo K. & Patunru, Arianto A., 2023. "Firms’ responses to foreign demand shocks: Evidence from Indonesia after the global financial crisis," Economic Modelling, Elsevier, vol. 128(C).
    3. Chengde You & Huishan Qiu & Zhuojie Pi & Mengyuan Yu, 2023. "Sustainable Enterprise Development in the Manufacturing Sector: Flexible Employment and Innovation in China," Sustainability, MDPI, vol. 15(10), pages 1-30, May.

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    More about this item

    Keywords

    FDI; industrial policy; labour market flexibility; economic development.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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