Working Paper: CEPR ID: DP4887
Authors: Sascha O. Becker; Karolina Ekholm; Robert Jäkle; Marc-Andreas Muendler
Abstract: Using data on German and Swedish multinational enterprises (MNEs), this paper analyses determinants of international location choice and the degree of substitutability of labour across locations. Countries with highly skilled labour forces strongly attract German but not necessarily Swedish MNEs. In MNEs from either country, affiliate employment tends to substitute for employment at the parent firm. At the margin, substitutability is the strongest with respect to affiliate employment in Western Europe. A 1% larger wage gap between Germany and locations in Central and Eastern Europe (CEE) is associated with 900 fewer jobs at German parents and 5,000 more jobs at affiliates in CEE. A 1% larger wage gap between Sweden and CEE is associated with 140 fewer jobs at Swedish parents and 260 more jobs at affiliates in CEE.
Keywords: labour demand; location choice; multinational enterprises; multinomial choice; translog cost function
JEL Codes: F21; F23; J21; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage differential between Germany and CEE (J31) | jobs at German parent firms (M16) |
| wage differential between Germany and CEE (J31) | jobs at affiliates in CEE (M51) |
| wage gap between Sweden and CEE (J31) | jobs at Swedish parent firms (M51) |
| wage gap between Sweden and CEE (J31) | jobs at affiliates in CEE (M51) |
| higher wages at home (J31) | employment at affiliates in CEE (M51) |
| employment at foreign affiliates (F23) | employment at domestic parent firms (F23) |
| higher wages (J39) | employment strategies of MNEs (F23) |