Labour Market Regulations and FDI Inflows in Developing Countries An Empirical Analysis

Abstract

What makes developing countries attractive for foreign direct investment (FDI)? Labour regulations are believed to be one of the major factors determining the level of FDI inflows to the developing countries. In order to allure the foreign investors, countries try to weaken labour rights, so that investors can reduce their labour costs. In this paper, we study the relationship between labour regulations and the amount of FDI inflows to the developing countries. Based on analysis of data from fifteen emerging markets, it is posited that changes in selective labour regulations influences inflows of FDI. It is concluded that policymakers in these developing countries need to strike a balance between securing the interest of the workers on the one hand and making efforts to attract a higher amount of FDI on the other.