Employment Protection and FDI Revisited: New Evidence from Micro Data
World Economy, Forthcoming
41 Pages Posted: 25 Apr 2019
Date Written: February 27, 2019
We use micro data on affiliates to Swedish multinational firms (MNEs) to explore the impact of more stringent employment protection legislation (EPL) on foreign direct investment (FDI). We add to the previous literature by exploring the impact of EPL on the extensive as well as intensive margin, and by distinguishing the impact on different types of affiliates. We find that employment and exports in exporting affiliates decline with EPL, and MNEs establish fewer exporting affiliates. In contrast, employment and sales rise with EPL in purely “horizontal” affiliates. We discuss possible mechanisms explaining this sharp asymmetry.
Keywords: Labor Market Insititutions, Employment Protection, FDI, Micro Data
JEL Classification: F23, J8, C20
Suggested Citation: Suggested Citation