Labor Regulations and Plant Location Choice: Evidence From India

Certain regulations in developing countries have often been cited as impediments to progress. This paper considers one facet of these regulations - labor laws - and investigates whether these have detrimental effects on firm location and investment decisions. Conventional wisdom holds that pro-worker labor regulations within a state would hinder firm location in that state. We fine strong evidence that this is indeed the case, and our results are robust to alternative specifications. Furthermore, disaggregation by industrial classifications shows that although labor regulations continue to exert negative effects, location choices are also conditioned on other factors such as proximity to raw materials and minerals.