IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Race to the Bottom? Employment Protection and Foreign Direct Investment

A common critique of globalization is that it leads to a race to the bottom. Speci?cally, it is assumed that multinationals invest in countries with lower regulatory standards and that countries competitively undercut each other's standards in order to attract foreign capital. This paper tests this hypothesis and finds robust empirical support for both predictions. First, a reduction in employment protection rules leads to an increase in foreign direct investment (FDI). Furthermore, changes in employment protection legislation have a larger impact on the relatively mobile types of FDI. Second, there is evidence that countries are competitively undercutting each other's labor market standards.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://web.williams.edu/Economics/wp/OlneyEmploymentProtectionAndFDI.pdf
File Function: Full text
Download Restriction: no

Paper provided by Department of Economics, Williams College in its series Center for Development Economics with number 2011-05.

as
in new window

Length: 46 pages
Date of creation: Nov 2010
Date of revision: Aug 2013
Publication status: Published in the Journal of International Economics, 91(2): 191-203.
Handle: RePEc:wil:wilcde:2011-05
Contact details of provider: Postal: Williamstown, MA 01267
Phone: 413 597 2476
Fax: 413 597 4045
Web page: http://econ.williams.edu
Email:


More information through EDIRC

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Céline Azémar & Rodolphe Desbordes, 2010. "Short-run Strategies for Attracting Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 33(7), pages 928-957, 07.
  2. 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.
  3. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  4. Tito Boeri & Juan F. Jimeno, . "The Effects of Employment Protection: Learning from Variable Enforcement," Working Papers 2003-12, FEDEA.
  5. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February.
  6. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
  7. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  8. Giorgio Primiceri & Alexander Monge-Naranjo & Francisco Buera, 2008. "Learning the Wealth of Nations," 2008 Meeting Papers 179, Society for Economic Dynamics.
  9. Martin, Will & Maskus, Keith E, 2001. "Core Labor Standards and Competitiveness: Implications for Global Trade Policy," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 317-28, May.
  10. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June.
  11. Jim Markusen & Caroline Ekholm, Rikard Forslid, 2005. "Export-Platform Foreign Direct Investment," The Institute for International Integration Studies Discussion Paper Series iiisdp050, IIIS.
  12. Drusilla K Brown & Alan V Deardorff & Robert M Stern, 2013. "Labor Standards and Human Rights: Implications for International Trade and Investment," World Scientific Book Chapters, in: Regulation of Foreign Investment Challenges to International Harmonization, chapter 5, pages 153-195 World Scientific Publishing Co. Pte. Ltd..
  13. Yeaple, Stephen Ross, 2003. "The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment," Journal of International Economics, Elsevier, vol. 60(2), pages 293-314, August.
  14. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  15. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
  16. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  17. Daron Acemoglu & Joshua Angrist, 1998. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," NBER Working Papers 6670, National Bureau of Economic Research, Inc.
  18. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 726-734, August.
  19. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
  20. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2004. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," NBER Working Papers 10939, National Bureau of Economic Research, Inc.
  21. Smarzynska, Beata & Spartareanu, Mariana, 2004. "Do foreign investors care about labor market regulations?," Policy Research Working Paper Series 3275, The World Bank.
  22. Gerda Dewit & Holger Görg & Catia Montagna, 2009. "Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 93-110, April.
  23. David Roodman, 2006. "How to Do xtabond2: An Introduction to "Difference" and "System" GMM in Stata," Working Papers 103, Center for Global Development.
  24. David KUCERA, 2002. "Core labour standards and foreign direct investment," International Labour Review, International Labour Organization, vol. 141(1-2), pages 31-69, 03.
  25. Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2007. "Institutional Determinants of Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 30(5), pages 764-782, 05.
  26. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  27. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57, December.
  28. Di Tella, Rafael & MacCulloch, Robert, 2005. "The consequences of labor market flexibility: Panel evidence based on survey data," European Economic Review, Elsevier, vol. 49(5), pages 1225-1259, July.
  29. Ronald B. Davies & Krishna Chaitanya Vadlamannati, 2011. "A Race to the Bottom in Labour Standards? An Empirical Investigation," The Institute for International Integration Studies Discussion Paper Series iiisdp385, IIIS.
  30. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  31. Bhagwati, Jagdish, 2007. "In Defense of Globalization: With a New Afterword," OUP Catalogue, Oxford University Press, number 9780195330939, March.
  32. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wil:wilcde:2011-05. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stephen Sheppard)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.