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

Gerda Dewit, Holger Görg, Catia Montagna

    Research output: Working paperDiscussion paper

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    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.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2003

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.145
    ISSN (Print)1473-236X

    Keywords

    • Uncertainty
    • Employment protection
    • Foreign direct investment
    • Domestic anchorage

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