Labor Rights and Foreign Direct Investment: Is There a Race to the Bottom?

Abstract

As global awareness of human rights continues to increase, the practices and investment decisions of multinational corporations have come under increased scrutiny. This is particularly the case with labor rights. Popular arguments concerning a “race to the bottom” abound, though a growing amount of scholarship portrays a more positive relationship between foreign capital and such rights. Yet empirical studies have yielded mixed results. To clarify the linkages between labor rights and foreign direct investment (FDI), we add to the extant literature in two ways. First, we take into account the reciprocal relationship between FDI and labor rights. Second, as FDI is a heterogeneous phenomenon, we assess these linkages across three different industrial sectors. Our findings show that there is a significant relationship between labor rights and FDI, though its exact nature varies across sectors.

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