Labor protection, labor costs, and China's outward foreign direct investment

Considering the 2008 Labor Contract Law as a quasi-natural experiment, this paper constructs a double difference model to examine the relationships among labor protection, labor costs, and China's outward foreign direct investment (OFDI). First, we theoretically study the mechanism of the impacts of labor protection. Then, we empirically confirm that the 2008 Labor Law significantly increased China's OFDI, and that this effect is heterogeneous among different firms. Our empirical evidence further suggests that the law increased the probability of Chinese enterprises' OFDI by increasing firms' wages, fixed labor costs, and the level of labor protection.