Abstract

This paper examines how employment protection legislation effects location decisions of multinatinals. Based on a simple theoretiical framework, we estimate an indices. We find that, while an "unfavourable" employment protection differential between a domestic and foreign location is inimical to foreign direct investment (FDI), a high domestic level of employment protection tends to discourage outward FDI. The result are in line with our conjecture that strict employment protectin in the firm's home country makes firms reluctant to relocate abroad and keeps them "anchored" at home