Discussion paper

DP3152 Multinational Investment, Industry Risk and Policy Competition

In an uncertain business climate, multinational enterprises must take account of future exit costs in deciding where to locate a branch plant. We study how differences in national labour-market conditions between countries influence this decision. Other things equal, the most attractive location has a flexible labour market (low closure costs) together with a low opportunity cost of employment (high unemployment). In a game between two countries, a nation with an inflexible labour market and high unemployment will succeed in attracting low-risk firms, while that with more flexible labour markets and low unemployment will win the game for higher risk firms.

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Citation

Haaland, J and I Wooton (2002), ‘DP3152 Multinational Investment, Industry Risk and Policy Competition‘, CEPR Discussion Paper No. 3152. CEPR Press, Paris & London. https://cepr.org/publications/dp3152