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

This paper analyzes the determinants and e ects of rm-level FDI ows on the basis of German micro-level data. Concering the determinants of FDI, I di erentiate between di erent target regions and motivations for FDI (market seeking/horizontal FDI versus cost reducing/vertical FDI). The main result is that most rms engage in FDI because of market access motives. Further, I focus on the employment e ects of direct investment projects abroad. From a theoretical point of view, the e ects of FDI ows on labor demand at the rm 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 nd that there is no negative e ect of rm-level FDI ows on employment. Positive e ects seem plausible in many speci cation. Further, theory and anecdotal evidence suggest that unskilled workers are a ected worse than highly or mediumskilled employees. Hence, the analysis distinguishes between di erent skill groups. Again, I cannot nd negative e ects of rm-level FDI ows on any skill group.