FDI Deregulation Versus Labor Market Reform: a Political Economy Approach

Louis Jaeck, Sehjeong Kim

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


This paper studies the political economy of foreign direct investment (FDI) in interaction with labor market policies. It analyzes the setting of reform focused on deregulating labor markets as a political compromise pressured by the lobbying of an industry lobby and a trade union. Using a common agency model of lobbying, we show that the interest group’s influence is socially distortive towards less deregulation. Also, our political economy framework shows that, for large countries, exogenous FDI liberalization policies lead to deregulation in the labor market. For small countries, such policies enhance more labor market rigidities.

Original languageEnglish
Pages (from-to)73-89
Number of pages17
JournalAtlantic Economic Journal
Issue number1
Publication statusPublished - Mar 1 2018


  • Common agency
  • FDI
  • Labor market
  • Lobbying

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)


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