Economic competitiveness and labour market regulation in developing economies

Developing countries require economic competitiveness and labour market regulations as levers of growth. This paper evaluates the impact of labour market regulation on economic competitiveness using panel data comprising 73 developing countries over the period 2000–2018. Results indicate that: (a) labour market flexibility increases internal competitiveness in line with the neoclassical debate and (b) labour market rigidity ameliorates external competitiveness thereby contesting the market deregulation approach. Likewise, good institutional quality upsurges internal and external competitiveness. To gauge for robustness, we run estimations for upper-middle as well as lower-and lower-middle income countries. Labour market flexibility is necessary to spur internal competitiveness for both groups of countries. Concerning external competitiveness, we find that labour market rigidity is significant only for lower-and lower-middle income countries and they mimic overall results for the full sample. Testing for sensitivity through the inclusion of institutional variables reveal that the rule of law, voice and accountability and political stability upsurges internal and external competitiveness for developing countries. Likewise, the long-run analysis provides robust results when we consider the overall sample of developing countries and solely for lower-and lower-middle income countries.