Do Foreign Investors Care about Labor Market Regulations?

Beata Smarzynska Javorcik () and Mariana Spatareanu

Working Papers Rutgers University, Newark from Department of Economics, Rutgers University, Newark

Abstract: This study investigates whether labor market flexibility affects foreign direct investment (FDI) flows across 19 Western and Eastern European countries. The analysis uses firm level data on new investments undertaken during 1998-2001. The study employs a variety of proxies for labor market regulations reflecting the flexibility of individual and collective dismissals, the length of the notice period and the required severance payment along with controls for business climate characteristics. The results suggest that greater flexibility in the host country’s labor market in absolute terms or relative to that in the investor’s home country is associated with larger FDI inflows.

Keywords: Foreign Direct Investment; Labor Market Regulation; Firm-level data (search for similar items in EconPapers)
JEL-codes: F21 F23 J0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-reg
Date: Written
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Working Paper: Do Foreign Investors Care About Labour Market Regulations? (2005)
Working Paper: Do foreign investors care about labor market regulations? (2004)
Journal Article: Do Foreign Investors Care about Labor Market Regulations? (2005)
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