DP4887 Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals

Author(s): Sascha O. Becker, Karolina Ekholm, Robert J├Ąckle, Marc-Andreas Muendler
Publication Date: February 2005
Keyword(s): labour demand, location choice, multinational enterprises, multinominial choice, translog cost function
JEL(s): F21, F23, J21, J23
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4887

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.