The Determinants of Foreign Direct Investment Employment Restrictions

27 Pages Posted: 4 Nov 2005

See all articles by Elizabeth Asiedu

Elizabeth Asiedu

Howard University - Department of Economics

Hadi Salehi Esfahani

University of Illinois at Urbana-Champaign

Date Written: August 2003

Abstract

This paper examines the determinants of FDI employment restrictions. We construct a political economy model where the TNE and the government have different objective functions: the TNE maximizes profits, and the host government cares about tax revenue and local employment. We show that the level of employment preferred by the government exceeds the level preferred by the TNE - the divergence in preferences motivates the government to impose restrictions. We test the implications of the model using data on employment restrictions derived from the World Bank's World Business Environment Survey conducted in 1999/2000. The analysis employs data for up to 1147 foreign-owned firms operating in 44 countries.

Keywords: Employment, Foregn Direct Investment, Restrictions

JEL Classification: D2, F1, F2

Suggested Citation

Asiedu, Elizabeth and Esfahani, Hadi Salehi, The Determinants of Foreign Direct Investment Employment Restrictions (August 2003). Available at SSRN: https://ssrn.com/abstract=835345 or http://dx.doi.org/10.2139/ssrn.835345

Elizabeth Asiedu (Contact Author)

Howard University - Department of Economics

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Hadi Salehi Esfahani

University of Illinois at Urbana-Champaign ( email )

Department of Economics
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Champaign, IL 61820
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