Rigidities in Employment Protection and Exporting
A large number of studies have shown that contribution of exporters to economic growth and development is much higher than non-exporting firms. This evidence has lead governments to improve their trade policies in order to increase foreign exposure...
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100510115506 http://hdl.handle.net/10986/3788 |
| Summary: | A large number of studies have shown
that contribution of exporters to economic growth and
development is much higher than non-exporting firms. This
evidence has lead governments to improve their trade
policies in order to increase foreign exposure of firms.
However, improvements in trade policies can only be fully
effective when they are complemented with other regulatory
reforms that improve the investment climate for firms. This
study focuses on a particular aspect of investment climate,
namely employment protection legislation, and shows how
these regulations discourage firms from exporting. Using a
rich set of firm level data from 26 countries in the Eastern
Europe and Central Asia region, the author shows that firms
that cannot create new jobs due to restrictive labor
regulations are less likely to export. Evidence shows that
firms that plan to export expand their size before they
start to export. However the rigidities in labor markets
make this adjustment costly. Higher costs of labor decrease
operating profits and lead to a higher threshold value of
productivity required for entering export markets. As a
result, a smaller fraction of firms chooses to export. |
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