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The effects of wrongful discharge protection on foreign multinationals: Evidence from transaction-level data

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  • Ivan T. Kandilov
  • Mine Z. Senses

Abstract

Using detailed micro-level data from 1977 to 1994, we analyze the impact of employment protection measures adopted across US states on the number and the value of new inbound foreign direct investment (FDI) transactions completed by foreign-owned companies. Our findings point to a robust negative association between the implementation of employment protection laws and both the extensive and the intensive margins of FDI in the US. When states adopt regulations that increase employers firing costs, FDI transactions by foreign multinational companies become less frequent and decrease in value, with stronger negative impacts in more labour-intensive industries. There is also some evidence of diversion and spillover effects from the adoption of these measures by neighbouring states.

Suggested Citation

  • Ivan T. Kandilov & Mine Z. Senses, 2016. "The effects of wrongful discharge protection on foreign multinationals: Evidence from transaction-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 111-146, February.
    • Handle: RePEc:cje:issued:v:49:y:2016:i:1:p:111-146
    DOI: 10.1111/caje.12192
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    2. Kandilov, Ivan T. & Leblebicioğlu, Asli & Petkova, Neviana, 2016. "The impact of banking deregulation on inbound foreign direct investment: Transaction-level evidence from the United States," Journal of International Economics, Elsevier, vol. 100(C), pages 138-159.
    3. Mao, Haiou & Görg, Holger & Fang, Guopei, 2023. "Time to Say Goodbye? The Impact of Environmental Regulation on Foreign Divestment," IZA Discussion Papers 16406, Institute of Labor Economics (IZA).
    4. Mao, Haiou & Görg, Holger & Fang, Guopei, 2023. "Time to say goodbye? The impact of environmental regulation on foreign divestment," KCG Working Papers 27, Kiel Centre for Globalization (KCG).
    5. Geran Tian & Weixing Wu, 2022. "Employment protection, production flexibility and corporate capital spending," Australian Economic Papers, Wiley Blackwell, vol. 61(1), pages 1-23, March.
    6. Mao, Haiou & Görg, Holger & Fang, Guopei, 2023. "Time to say goodbye? The impact of environmental regulation on foreign divestment," Kiel Working Papers 2255, Kiel Institute for the World Economy (IfW Kiel).
    7. Haiou Mao & Holger Görg & Guopei Fang, 2024. "Time to say goodbye? The impact of environmental regulation on foreign divestment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(2), pages 502-527, May.

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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