Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data

47 Pages Posted: 30 Oct 2012

See all articles by Pehr-Johan Norback

Pehr-Johan Norback

Research Institute of Industrial Economics (IFN)

Jing-Lin Duanmu

University of Surrey - Faculty of Management & Law

Per Skedinger

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

Date Written: October 29, 2012

Abstract

In this paper we show, theoretically and empirically, that stronger employment protection legislation (EPL) in a host country has important and differing effects on the various activities of multinational enterprises (MNEs). Using micro data on affiliates to Swedish multinational firms in 20 countries for the period of 1965–1998, we find that increased stringency in EPL is associated with fewer investments in new affiliates and lower employment in existing affiliates. We also find that it is mainly affiliate exports that are affected negatively by stronger EPL, while the impact on local sales is small. This is in accordance with our theoretical model, which predicts that the impact of EPL on the costs of competing firms is likely to put affiliates at a smaller disadvantage when selling for the local market than in the production for exports.

Keywords: labor market institutions, firm heterogeneity, oligopoly, Platform-FDI

JEL Classification: F23, J8, C20

Suggested Citation

Norback, Pehr-Johan and Duanmu, Jing-Lin and Skedinger, Per, Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data (October 29, 2012). Available at SSRN: https://ssrn.com/abstract=2168141 or http://dx.doi.org/10.2139/ssrn.2168141

Pehr-Johan Norback

Research Institute of Industrial Economics (IFN) ( email )

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

Jing-Lin Duanmu (Contact Author)

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

United Kingdom

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

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