Labor Market Flexibility as a Determinant of FDI Inflows

Hazel Parcon-Santos

No 200807, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: This paper shows that labor market flexibility, measured by labor market standards and regulations, has two opposing effects on FDI inflows. Labor market regulations and standards decrease FDI inflows through the cost channel, but they increase FDI inflows through the productivity channel. Allowing for a non-linear relationship between different indicators of labor market flexibility and FDI inflows revealed that some degree of labor market standards and regulations may be attractive for foreign investors. Results strongly suggest that foreign investments to and from different countries and in different sectors are affected differently by different aspects of labor market standards and regulations.

Keywords: foreign direct investment; labor market flexibility (search for similar items in EconPapers)
JEL-codes: F16 F21 (search for similar items in EconPapers)
Pages: 51
Date: 2008-10-01
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (14)

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