Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage, and FDI

Gerda Dewit, Holger Görg and Catia Montagna

No 845, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: domestic anchorage; employment protection; foreign direct investment; uncertainty (search for similar items in EconPapers)
JEL-codes: D80 F23 J80 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2003-08
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (5)

Published - published as 'Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage' in: Review of World Economics, 145 (1), 2009, 93-110

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Working Paper: Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage and FDI (2003)
Working Paper: Should I stay or should I go? A note on employment protection, domestic anchorage, and FDI (2003)
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