The employment effects of foreign direct investment

Recognising three main channels of economic integration (labour migration, trade flows, and FDI), this paper focuses on the employment effects of FDI in Europe, addressing, in particular, concerns that EU firms will relocate jobs to low-wage countries in Central and Eastern Europe at the expense of jobs elsewhere in the European Union. European firm level data are used to document firm level differences in labour costs and productivity between high-wage and low-wage regions, thereby assessing the competitiveness of various regions. In addition, firm level data of over 1,000 European transnational corporations and their affiliates are used to analyse whether employment relocation between high-and low-wage regions occurs. The main finding is that employment relocation from west to east is not taking place, but there is evidence for employment relocation within high-wage European regions.