IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/3152.html
   My bibliography  Save this paper

Multinational Investment, Industry Risk and Policy Competition

Author

Listed:
  • Haaland, Jan I.
  • Wooton, Ian

Abstract

In an uncertain business climate, multinational enterprises must take account of future exit costs in deciding where to locate a branch plant. We study how differences in national labour-market conditions between countries influence this decision. Other things equal, the most attractive location has a flexible labour market (low closure costs) together with a low opportunity cost of employment (high unemployment). In a game between two countries, a nation with an inflexible labour market and high unemployment will succeed in attracting low-risk firms, while that with more flexible labour markets and low unemployment will win the game for higher risk firms.

Suggested Citation

  • Haaland, Jan I. & Wooton, Ian, 2002. "Multinational Investment, Industry Risk and Policy Competition," CEPR Discussion Papers 3152, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3152
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP3152
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:bla:scandj:v:101:y:1999:i:4:p:631-49 is not listed on IDEAS
    2. Ram Mudambi, 1999. "Multinational Investment Attraction: Principal-Agent Considerations," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(1), pages 65-79.
    3. Jan I. Haaland & Ian Wooton, 1999. "International Competition for Multinational Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 631-649, December.
    4. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    5. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    6. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    7. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    8. Jan I. Haaland & Ian Wooton & Giulia Faggio, 2002. "Multinational Firms: Easy Come, Easy Go?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(1), pages 3-26, February.
    9. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
    10. Kind, Hans Jarle & Knarvik, Karen Helene Midelfart & Schjelderup, Guttorm, 2000. "Competing for capital in a 'lumpy' world," Journal of Public Economics, Elsevier, vol. 78(3), pages 253-274, November.
    11. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dewit, Gerda & Görg, Holger & Montagna, Catia, 2003. "Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage, and FDI," IZA Discussion Papers 845, Institute of Labor Economics (IZA).
    2. Kerstin Pull, 2003. "Der Einfluss personalpolitischer Flexibilität auf die Standortwahl Multinationaler Unternehmen: eine empirische Analyse," IAAEG Discussion Papers until 2011 200301, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    3. Barbieri Teresa & Devicienti Francesco & Manello Alessandro & Vannoni Davide, 2022. "The effect of EPL on the internationalization of small firms," Working papers 078, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    4. Martin Robson & Roxana Radulescu, 2004. "Does stricter employment protection legislation deter FDI?," Money Macro and Finance (MMF) Research Group Conference 2003 81, Money Macro and Finance Research Group.
    5. Ketteni, Elena & Kottaridi, Constantina, 2019. "The impact of regulations on the FDI-growth nexus within the institution-based view: A nonlinear specification with varying coefficients," International Business Review, Elsevier, vol. 28(3), pages 415-427.
    6. Jeongseok Song & Daecheon Yang & Soonwon Kwon, 2017. "Fdi Consequences Of Downward Wage–Cost Rigidities," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1223-1244, December.
    7. Görg, Holger, 2002. "Fancy a Stay at the 'Hotel California'? Foreign Direct Investment, Taxation and Firing Costs," IZA Discussion Papers 665, Institute of Labor Economics (IZA).
    8. Mogab, J. & Kishan, R. & Vacaflores, D.E., 2013. "Labor Market Rigidity And Foreign Direct Investment: The Case Of Europe," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(1), pages 35-54.
    9. Asiedu, Elizabeth & Esfahani, Hadi Salehi, 2008. "Is the world flat?: Differential regulation of domestic and foreign-owned firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(2), pages 389-411, May.
    10. Jan I. Haaland & Ian Wooton, 2007. "Domestic Labor Markets and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 15(3), pages 462-480, August.
    11. Giovanni Immordino, 2003. "Fairness, NGO Activism and the Welfare of Less Developed Countries," CSEF Working Papers 101, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Dec 2007.
    12. Gerda Dewit & Holger Görg & Catia Montagna, 2009. "Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 93-110, April.
    13. Christian Bellak & Markus Leibrecht & Jože P. Damijan, 2009. "Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries," The World Economy, Wiley Blackwell, vol. 32(2), pages 267-290, February.
    14. Holger Görg, 2005. "Fancy a Stay at the ‘Hotel California’? The Role of Easy Entry and Exit for FDI," Kyklos, Wiley Blackwell, vol. 58(4), pages 519-535, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jan I. Haaland & Ian Wooton, 2007. "Domestic Labor Markets and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 15(3), pages 462-480, August.
    2. Jan I. Haaland & Ian Wooton & Giulia Faggio, 2002. "Multinational Firms: Easy Come, Easy Go?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(1), pages 3-26, February.
    3. Görg, Holger, 2002. "Fancy a Stay at the 'Hotel California'? Foreign Direct Investment, Taxation and Firing Costs," IZA Discussion Papers 665, Institute of Labor Economics (IZA).
    4. Gross, Dominique M. & Ryan, Michael, 2008. "FDI location and size: Does employment protection legislation matter?," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 590-605, November.
    5. Isabel Faeth, 2009. "Determinants Of Foreign Direct Investment – A Tale Of Nine Theoretical Models," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 165-196, February.
    6. Holger Görg, 2003. "Foreign direct investment, investment incentives, and firing costs: A disadvantage for "inflexible Europe"?," European Economy Group Working Papers 30, European Economy Group.
    7. Haufler, Andreas & Wooton, Ian, 2001. "Regional tax coordination and foreign direct investment," University of Göttingen Working Papers in Economics 14, University of Goettingen, Department of Economics.
    8. Haufler, Andreas & Wooton, Ian, 2006. "The effects of regional tax and subsidy coordination on foreign direct investment," European Economic Review, Elsevier, vol. 50(2), pages 285-305, February.
    9. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
    10. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, "undated". "Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection," Working Papers 2004-26, FEDEA.
    11. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    12. van Ours, Jan C. & Boone, Jan & Belot, Michèle, 2002. "Welfare Effects of Employment Protection," CEPR Discussion Papers 3396, C.E.P.R. Discussion Papers.
    13. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2017. "Inside severance pay," Journal of Public Economics, Elsevier, vol. 145(C), pages 211-225.
    14. Schmitz, Patrick W., 2004. "Job protection laws and agency problems under asymmetric information," European Economic Review, Elsevier, vol. 48(5), pages 1027-1046, October.
    15. Azémar, Céline & Desbordes, Rodolphe & Wooton, Ian, 2020. "Is international tax competition only about taxes? A market-based perspective," Journal of Comparative Economics, Elsevier, vol. 48(4), pages 891-912.
    16. Yu‐Fu Chen & Dennis Snower & Gylfi Zoega, 2003. "Labour‐market Institutions and Macroeconomic Shocks," LABOUR, CEIS, vol. 17(2), pages 247-270, June.
    17. Jens Suedekum & Peter Ruehmann, 2003. "Severance Payments and Firm–specific Human Capital," LABOUR, CEIS, vol. 17(1), pages 47-62, March.
    18. Kjell Erik Lommerud & Odd Rune Straume & Steinar Vagstad, 2018. "Employment Protection and Unemployment Benefits: On Technology Adoption and Job Creation in a Matching Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(3), pages 763-793, July.
    19. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2012. "The Political Economy Of Flexicurity," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 684-715, August.
    20. Calcagnini, Giorgio & Ferrando, Annalisa & Giombini, Germana, 2014. "Does employment protection legislation affect firm investment? The European case," Economic Modelling, Elsevier, vol. 36(C), pages 658-665.

    More about this item

    Keywords

    Multinational firms; Investment subsidies; Entry; Exit; Uncertainty;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3152. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.