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The effects of wrongful discharge protection on foreign multinationals: Evidence from transaction‐level data
Author(s) -
Kandilov Ivan T.,
Senses Mine Z.
Publication year - 2016
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12192
Subject(s) - foreign direct investment , multinational corporation , spillover effect , business , value (mathematics) , point (geometry) , international economics , panel data , database transaction , transaction cost , international trade , economics , finance , machine learning , computer science , programming language , econometrics , macroeconomics , microeconomics , geometry , mathematics
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.