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World Economy

Employment Protection and FDI Revisited: New Evidence from Micro Data

Journal Article
Norbäck, Pehr-Johan, Per Skedinger and Jing-Lin Duanmu (2021). “Employment Protection and FDI Revisited: New Evidence from Micro Data”. World Economy 44(3), 645–670.

Pehr-Johan Norbäck, Per Skedinger, Jing-Lin Duanmu

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.

Pehr-Johan Norbäck

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Per Skedinger

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