Labor Market Flexibility and FDI: Evidence from OECD Countries

Abstract

This paper studies the impact of the labor market regulations on the FDI and employment and production of foreign firms for OECD countries. The empirical results reveal that strict labor market discourages initial entry of foreign firms as well as the employment and production of foreign firms. Therefore, policymakers should also be attuned to labor market deregulation and non-wage costs, in order to attract more foreign firms into their countries.