The Impact Of Horizontal And Vertical FDI On Labor Demand For Different Skill Groups

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Executive Summary

This paper analyzes the determinants and effects of firm-level FDI flows on the basis of German micro-level data. Concerning the determinants of FDI, the author differentiates 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, the author focuses 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 an econometric framework based on the Generalized Method of Moments (GMM).

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