Does the Impact of Employment Protection Legislation on Foreign Direct Investment Differ by the Skill Intensity of Locations? An Empirical Investigation

17  June 2010    4:00 pm

Christian Bellak, Vienna University of Economics and Business Administration

In cooperation with:
Research Centre International Economics (FIW) 


wiiw, Rahlgasse 3, 1060 Vienna, lecture hall (entrance from the ground floor)


In line with previous literature we find that strict employment protection deters foreign direct investment. This finding is consistent with the view that rigid labor markets result in high adjustment and exit costs which discourage firm investment. Moreover, our results also show that the deterrent effect of rigid labor markets depends on the skill-intensity of a location, a result which has not been established empirically so far. Thus, strategic considerations by elected politicians might play an important role in explaining the apparent inability of governments to implement social immigration policies and the large resulting number of illegal immigrants.

Keywords: foreign direct investment; labor market; economic policy

JEL classification: J41, J8, F21