How Important is Employment Protection Legislation for Foreign Direct Investment Flows in Central and Eastern European Countries?

The purpose of this paper is to investigate empirically the importance of labor market conditions and in particular of employment protection legislation as a determinant of bilateral Foreign Direct Investment flows to seven Central and Eastern European countries. Although our results indicate that countries characterized by low unit labor costs tend to attract more Foreign Direct Investment, we find no evidence suggesting that employment protection legislation matters in this context. This result also holds if we control for the riskiness of the host countries.