Abstract
What is the relationship between respect for labor rights and foreign direct investment (FDI)? This study explores this connection with an emphasis on the strategic role of governments in attracting FDI. We present a formal model demonstrating that governments can do so by setting the level of labor rights protection and, as a consequence, investors will choose to invest in the face of tough labor regulations or cease investing, anticipating that the costs of abiding by these regulations will be too high. The model also suggests that governments will have an incentive to implement labor regulations when enforcement costs are sufficiently low or the profits from investment are sufficiently high. Using data from developing countries across time, error correction models test the dynamic nature of these hypotheses and find support for them: strict labor laws tend to decrease inflow of FDI, but more FDI tends to encourage better labor practices.
| Original language | English |
|---|---|
| Pages (from-to) | 462-474 |
| Number of pages | 13 |
| Journal | International Studies Quarterly |
| Volume | 58 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2014 Sep 1 |
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All Science Journal Classification (ASJC) codes
- Sociology and Political Science
- Political Science and International Relations
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Attracting Investment : Governments' Strategic Role in Labor Rights Protection. / Payton, Autumn Lockwood; Woo, Byungwon.
In: International Studies Quarterly, Vol. 58, No. 3, 01.09.2014, p. 462-474.Research output: Contribution to journal › Article
TY - JOUR
T1 - Attracting Investment
T2 - Governments' Strategic Role in Labor Rights Protection
AU - Payton, Autumn Lockwood
AU - Woo, Byungwon
PY - 2014/9/1
Y1 - 2014/9/1
N2 - What is the relationship between respect for labor rights and foreign direct investment (FDI)? This study explores this connection with an emphasis on the strategic role of governments in attracting FDI. We present a formal model demonstrating that governments can do so by setting the level of labor rights protection and, as a consequence, investors will choose to invest in the face of tough labor regulations or cease investing, anticipating that the costs of abiding by these regulations will be too high. The model also suggests that governments will have an incentive to implement labor regulations when enforcement costs are sufficiently low or the profits from investment are sufficiently high. Using data from developing countries across time, error correction models test the dynamic nature of these hypotheses and find support for them: strict labor laws tend to decrease inflow of FDI, but more FDI tends to encourage better labor practices.
AB - What is the relationship between respect for labor rights and foreign direct investment (FDI)? This study explores this connection with an emphasis on the strategic role of governments in attracting FDI. We present a formal model demonstrating that governments can do so by setting the level of labor rights protection and, as a consequence, investors will choose to invest in the face of tough labor regulations or cease investing, anticipating that the costs of abiding by these regulations will be too high. The model also suggests that governments will have an incentive to implement labor regulations when enforcement costs are sufficiently low or the profits from investment are sufficiently high. Using data from developing countries across time, error correction models test the dynamic nature of these hypotheses and find support for them: strict labor laws tend to decrease inflow of FDI, but more FDI tends to encourage better labor practices.
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UR - http://www.scopus.com/inward/citedby.url?scp=84925362115&partnerID=8YFLogxK
U2 - 10.1111/isqu.12138
DO - 10.1111/isqu.12138
M3 - Article
AN - SCOPUS:84925362115
VL - 58
SP - 462
EP - 474
JO - International Studies Quarterly
JF - International Studies Quarterly
SN - 0020-8833
IS - 3
ER -