Do foreign investors care about labor market regulations?

Beata Smarzynska Javorcik, Mariana Spatareanu

Research output: Contribution to journalArticlepeer-review

82 Scopus citations


This study investigates whether labor market flexibility affects foreign direct investment (FDI) flows across 19 Western and Eastern European countries. The analysis uses firm level data on new investments undertaken in the period 1998-2001. The study employs a variety of proxies for labor market regulations reflecting the flexibility of individual and collective dismissals, the length of the notice period and the required severance payment along with controls for business climate characteristics. The results suggest that greater flexibility in the host country's labor market in absolute terms or relative to that in the investor's home country is associated with larger FDI inflows.

Original languageEnglish (US)
Pages (from-to)375-403
Number of pages29
JournalReview of World Economics
Issue number3
StatePublished - Oct 2005
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)


  • Firm level data
  • Foreign direct investment
  • Labor market regulation


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