Employment Protection and FDI Revisited: New Evidence from Micro Data

Reprint No. 2021:15

Author(s): Pehr-Johan Norbäck, Per Skedinger and Jing-Lin DuanmuYear: 2021 Title: World Economy Volume (No.): 44 (3) Pages: 645–670
Online article (restrictions may apply)
Preliminary version

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.

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


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Per Skedinger


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Interdisciplinary European Studies

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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