The Impact of Horizontal and Vertical FDI on Labor Demand for Different Skill Groups

Anselm Mattes

No 59, IAW Discussion Papers from Institut für Angewandte Wirtschaftsforschung (IAW)

Abstract: This paper analyzes the determinants and effects of firm-level FDI flows on the basis of German micro-level data. Concering the determinants of FDI, I differentiate between different target regions and motivations for FDI (market seeking/horizontal FDI versus cost reducing/vertical FDI). The main result is that most firms engage in FDI because of market access motives. Further, I focus on the employment effects of direct investment projects abroad. From a theoretical point of view, the effects of FDI flows on labor demand at the firm level are uncertain. Therefore, this paper analyzes this question empirically using theory-based labor demand regressions and and an econometric framework based on the generalized method of moments (GMM). As a main result I find that there is no negative effect of firm-level FDI flows on employment. Positive effects seem plausible in many specication. Further, theory and anecdotal evidence suggest that unskilled workers are aected worse than highly or medium-skilled employees. Hence, the analysis distinguishes between different skill groups. Again, I cannot find negative effects of firm-level FDI flows on any skill group.

Keywords: FDI; horizontal FDI; vertical FDI; labor demand; skill gorups; GMM (search for similar items in EconPapers)
JEL-codes: F16 F23 J23 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2010-02
New Economics Papers: this item is included in nep-int and nep-lab
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