Political situation, legal and labour regulatory regimes and employment creation by firms in emerging economies

Purpose This study investigates the legal system, labour regulations and political uncertainty effects on employment creation in emerging economies (EE). Also, size, export focus, ownership and sector influences on employment creation are explored. Design/methodology/approach The study utilized the generalised methods of moments estimator, relying on data from 69 emerging economies. A Bayesian estimation technique is adopted to robustly check the GMM results. Findings Evidence shows that concerns about political instability, the court system and labour regulations constrain employment creation. The study finds significant firm size, export orientation and sector effects and an insignificant ownership effect on employment creation. Practical implications The findings show that employment creation policies should improve the court system and instil firms’ confidence in the legal regime, ensuring political stability and a favourable labour regulatory regime. Also, policy must not emphasise foreign firms over domestic firms, as they impact employment creation equally. Originality/value The study applies GMM and Bayesian estimation techniques to evaluate employment creation and provides both theoretical and practical insights. The evidence provides insights for policymakers to enhance employment creation. The study’s evidence supports the rational decision and real options theories and extends the employment creation literature.