TY - JOUR
T1 - Is the world flat?. Differential regulation of domestic and foreign-owned firms
AU - Asiedu, Elizabeth
AU - Esfahani, Hadi Salehi
N1 - Funding Information:
The authors acknowledge funding from the National Science Foundation (SES-0337962), the University of Kansas General Research Fund (2301566) and the Institute for Policy and Social Research at the University of Kansas.
PY - 2008/5
Y1 - 2008/5
N2 - This paper examines the determinants of differential employment restrictions applied to foreign versus domestic firms. We develop a model of employment regulation and test its implications using data from the World Bank's World Business Environment Survey, conducted in 1999/2000. We find that while democratic accountability, corruption, and British legal origin reduce the extent of government intervention in firms' employment decision, they give greater advantage to domestic relative to foreign investors. Rule of law, on the other hand, has a more even effect. Better investment opportunities in the country enhance the government's bargaining power vis-à-vis investors and increase employment intervention, especially in foreign firms engaged in less tradable sectors. We also identify a host of other factors that influence employment restrictions, though none of them entail a differential impact on foreign investors. We find that after controlling for other factors, foreign investors in Latin America face a greater regulatory disadvantage vis-à-vis locals compared to other regions of the world, though this is partly counterbalanced by other effects captured in the model.
AB - This paper examines the determinants of differential employment restrictions applied to foreign versus domestic firms. We develop a model of employment regulation and test its implications using data from the World Bank's World Business Environment Survey, conducted in 1999/2000. We find that while democratic accountability, corruption, and British legal origin reduce the extent of government intervention in firms' employment decision, they give greater advantage to domestic relative to foreign investors. Rule of law, on the other hand, has a more even effect. Better investment opportunities in the country enhance the government's bargaining power vis-à-vis investors and increase employment intervention, especially in foreign firms engaged in less tradable sectors. We also identify a host of other factors that influence employment restrictions, though none of them entail a differential impact on foreign investors. We find that after controlling for other factors, foreign investors in Latin America face a greater regulatory disadvantage vis-à-vis locals compared to other regions of the world, though this is partly counterbalanced by other effects captured in the model.
KW - Employment regulation
KW - Foreign direct investment
KW - Political economy
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U2 - 10.1016/j.qref.2007.03.003
DO - 10.1016/j.qref.2007.03.003
M3 - Article
AN - SCOPUS:41649087765
SN - 1062-9769
VL - 48
SP - 389
EP - 411
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
IS - 2
ER -