Labor Law, Corporate Investment, and Economic Growth
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| Title | Labor Law, Corporate Investment, and Economic Growth
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| Author | Pan Hongbo and Chen Shilai |
| Organization | Economics and Management School of Wuhan University |
| Email | phb@whu.edu.cn |
| Key Words | Labor Law; Property Rights; Corporate Investment; Labor-Intensive Industries; Economic Growth |
| Abstract | This paper tests whether labor law executed from 2008 has a negative impact on corporate investment, and subsequently impedes the economic growth of China. We find that the effect of labor law on the investment of state-owned firms is insignificant; Labor law has a significantly negative impact on the investment of private firms, which is particularly pronounced in labor-intensive industries. Furthermore, labor law has a significantly negative effect on the GDP growth of provinces, which is more pronounced in provinces dominated by private firms with heavy employees. These results suggest that, compared with state-owned firms with soft employee constraints, labor law for employee protections reduces the investment of private firms, and subsequently hinders the economic growth of China. This paper contributes to the extant literature on labor law by analyzing the effects of labor law on corporate investment and economic growth, and provides new interpretations on the decline in the economic growth of China from 2008. The policy implication of our paper is that, to maintain the high level of economic growth of China, the government should make some alternative policies to hedge the negative effects of labor law on employee burdens of firms. |
| Serial Number | WP1049 |
| Time | 2016-04-08 |
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