Location Choice and Employment Decisions of German Multinationals∗

Using a newly constructed data set on outward FDI from Germany, comprising both parent and affiliate panels for the period 1989-2001, this paper studies the location choice of German parents and consequences for labor demand across locations. Results indicate that large, relative skill abundant countires attract German FDI. Firms in skill-intensive industries seek skilled labor in their foreign operations. Nevertheless, labor demand elasticity estimates in a translog framework tend to indicate substitutability between home and foreign employment. The paper suggests to use location choice estimates to remove a location-selection bias from labor demand estimates.