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

20 Pages Posted: 19 Aug 2003

See all articles by Gerda Dewit

Gerda Dewit

University of Glasgow - Department of Economics

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Catia Montagna

University of Aberdeen; SIRE; GEP, Nottingham

Date Written: August 2003

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: uncertainty, employment protection, foreign direct investment, domestic anchorage

JEL Classification: D80, F23, J80

Suggested Citation

Dewit, Gerda and Gorg, Holger and Montagna, Catia, Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage, and FDI (August 2003). IZA Discussion Paper No. 845. Available at SSRN: https://ssrn.com/abstract=435220

Gerda Dewit

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom
+141 330 4659/4658 (Phone)
+141 330 4940 (Fax)

Holger Gorg (Contact Author)

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

Catia Montagna

University of Aberdeen ( email )

Business School
Edward Wright Building
Aberdeen, Scotland AB243QJ
United Kingdom
+44 1224 273690 (Phone)

SIRE ( email )

First floor - Room 1.10
31 Buccleuch Place
Edinburgh, Scotland EH8 9JT
United Kingdom

GEP, Nottingham ( email )

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