Employment Protection and FDI Revisited: New Evidence from Micro Data

World Economy, Forthcoming

41 Pages Posted: 25 Apr 2019

See all articles by Pehr-Johan Norback

Pehr-Johan Norback

Research Institute of Industrial Economics (IFN)

Per Skedinger

Research Institute of Industrial Economics (IFN); Linnaeus University - School of Business and Economics

Jing-Lin Duanmu

University of Surrey - Faculty of Management & Law

Date Written: February 27, 2019

Abstract

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

Norback, Pehr-Johan and Skedinger, Per and Duanmu, Jing-Lin, Employment Protection and FDI Revisited: New Evidence from Micro Data (February 27, 2019). World Economy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3360252 or http://dx.doi.org/10.2139/ssrn.3360252

Pehr-Johan Norback

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Per Skedinger

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/PerS

Linnaeus University - School of Business and Economics ( email )

VÄXJÖ, SE-351 95
Sweden

Jing-Lin Duanmu (Contact Author)

University of Surrey - Faculty of Management & Law ( email )

United Kingdom

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