Review of World Economics

, Volume 141, Issue 4, pp 693–731 | Cite as

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

  • Sascha O. BeckerEmail author
  • Karolina Ekholm
  • Robert Jäckle
  • Marc-Andreas Muendler


Using data on German and Swedish multinational enterprises (MNEs), this paper analyzes determinants of location choice and the degree of substitutability of labor across locations. Countries with highly skilled labor 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 one percent larger wage gap between Germany and locations in Central and Eastern Europe (CEE) is associated with 760 fewer jobs at German parents and 4,620 more jobs at affiliates in CEE. A one percent larger wage gap between Sweden and CEE is associated with 140 fewer jobs at Swedish parents and 260 more jobs at affiliates in CEE.


Multinational enterprises location choice multinomial choice labor demand translog cost function 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Anderson, R. G., and J. G. Thursby (1986). Confidence Intervals for Elasticity Estimators in Translog Models. Review of Economics and Statistics 68 (4): 647–656.Google Scholar
  2. 2.
    Barba Navaretti, G., and A. J. Venables (2004). Multinational Firms in the World Economy. Princeton: Princeton University Press.Google Scholar
  3. 3.
    Barro, R. J., and J. W. Lee (2001). International Data on Educational Attainment: Updates and Implications. Oxford Economic Papers 53 (3): 541–563.Google Scholar
  4. 4.
    Becker, S. O., R. Jäckle, and M.-A. Muendler (2005). Kehren deutsche Firmen ihrer Heimat den Rücken? Ausländische Direktinvestitionen deutscher Unternehmen. Ifo Schnelldienst 58 (1): 23–33.Google Scholar
  5. 5.
    Becker, S. O., K. Ekholm, R. Jäckle, and M.-A. Muendler (2005). Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals. CESifo Working Paper 1374.Google Scholar
  6. 6.
    Blomström, M., G. Fors, and R. E. Lipsey (1997). Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden. Economic Journal 107 (445): 1787–1797.Google Scholar
  7. 7.
    Braconier, H., and K. Ekholm (2000). Swedish Multinationals and Competition from High- and Low-Wage Locations. Review of International Economics 8 (3): 448–461.Google Scholar
  8. 8.
    Braconier, H., P.-J. Norbäck, and D. Urban (2002). Vertical FDI Revisited. IUI Working Paper 579. Research Institute of Industrial Economics, Stockholm.Google Scholar
  9. 9.
    Brainard, S. L. (1997). An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade. American Economic Review 87 (4): 520–544.Google Scholar
  10. 10.
    Brainard, S. L., and D. A. Riker (2001). Are U.S. Multinationals Exporting U.S. Jobs? In D. Greenaway and D. R. Nelson (eds.), Globalization and Labour Markets. Cheltenham: Elgar.Google Scholar
  11. 11.
    Brown, R. S., and L. R. Christensen (1981). Estimates of Elasticities of Substitution in a Model of Partial Static Equilibrium: An Application to US Agriculture, 1947–1974. In E. R. Berndt and B. C. Field (eds.), Modeling and Measuring Natural Resource Substitution. Cambridge, Mass.: MIT Press.Google Scholar
  12. 12.
    Buch, C. M., J. Kleinert, A. Lipponer, and F. Toubal (2005). Determinants and Effects of Foreign Direct Investment: Evidence from German Firm-Level Data. Economic Policy 41: 51–98.Google Scholar
  13. 13.
    Burgess, D. F. (1974). A Cost Minimization Approach to Import Demand Equations. Review of Economics and Statistics 56 (2): 225–234.Google Scholar
  14. 14.
    Carr, D. L., J. R. Markusen, and K. E. Maskus (2003). Estimating the Knowledge-Capital Model of the Multinational Enterprise: Reply. American Economic Review 93 (3): 995–1001.Google Scholar
  15. 15.
    Castellani, D., and G. Barba Navaretti (2004). Investments Abroad and Performance at Home: Evidence from Italian Multinationals. CEPR Discussion Paper 4284. Centre for Economic Policy Research, London.Google Scholar
  16. 16.
    Christensen, L. R., D. W. Jorgenson, and L. J. Lau (1973). Transcendental Logarithmic Production Frontiers. Review of Economics and Statistics 55 (1): 28–45.Google Scholar
  17. 17.
    Ekholm, K. (1998). Proximity Advantages, Scale Economies, and the Location of Production. In P. Braunerhjelm and K. Ekholm (eds.), The Geography of Multinational Firms. Boston: Kluwer.Google Scholar
  18. 18.
    Ekholm, K., and R. Forslid (2001). Trade and Location with Horizontal and Vertical Multi-Region Firms. Scandinavian Journal of Economics 103 (1): 101–118.Google Scholar
  19. 19.
    Ekholm, K., and M. Hesselman (2000). The Foreign Operations of Swedish Manufacturing Firms: Evidence from a Survey of Swedish Multinationals in 1998. IUI Discussion Paper 540. Research Institute of Industrial Economics, Stockholm.Google Scholar
  20. 20.
    Feenstra, R. C., and G. H. Hanson (1999). The Impact of Outsourcing and High-Technology Capital on Wages: Estimates for the United States, 1979–1990. Quarterly Journal of Economics 114 (3): 907–940.Google Scholar
  21. 21.
    Freeman, R. B., and R. H. Oostendorp (2001). The Occupational Wages around the World Data File. International Labour Review 140 (4): 379–401.Google Scholar
  22. 22.
    Hansson, P. (2001). Skill Upgrading and Production Transfer within Swedish Multinationals in the 1990s. FIEF Working Paper 166. Trade Union Institute for Economic Research, Stockholm.Google Scholar
  23. 23.
    Head, K., and T. Mayer (2004). Market Potential and the Location of Japanese Investment in the European Union. Review of Economics and Statistics 86 (4): 959–972.Google Scholar
  24. 24.
    Head, K., and J. Ries (2002). Offshore Production and Skill Upgrading by Japanese Manufacturing Firms. Journal of International Economics 58 (1): 81–105.Google Scholar
  25. 25.
    ITPS (2004). Svenskägda Koncerner Med Verksamhet I Utlandet 2002. Institutet för tillväxtpolitiska studier 2004. Sveriges Officiella Statistik, 2004:003.Google Scholar
  26. 26.
    Konings, J., and A. Murphy (2001). Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from European Firm Level Panel Data. CEPR Discussion Paper 2972. Centre for Economic Policy Research, London.Google Scholar
  27. 27.
    Lipponer, A. (2003). A “New” Micro Database for German FDI. In H. Herrmann and R. Lipsey (eds.), Foreign Direct Investment in the Real and Financial Sector of Industrial Countries. Berlin: Springer.Google Scholar
  28. 28.
    Marin, D. (2004). A Nation of Poets and Thinkers—Less so with Eastern Enlargement? Austria and Germany. CEPR Discussion Paper 4358. Centre for Economic Policy Research, London.Google Scholar
  29. 29.
    Markusen, J. R. (2002). Multinational Firms and the Theory of International Trade. Cambridge, Mass.: MIT Press.Google Scholar
  30. 30.
    Shatz, H. J. (2003). Gravity, Education, and Economic Development in a Multinational Affiliate Location. Journal of International Trade and Economic Development 12 (2): 117–150.Google Scholar
  31. 31.
    Slaughter, M. J. (1995). Multinational Corporations, Outsourcing, and American Wage Divergence. NBER Working Paper 5253. National Bureau of Economic Research. Cambridge, Mass.Google Scholar
  32. 32.
    Slaughter, M. J. (2000). Production Transfer within Multinational Enterprises and American Wages. Journal of International Economics 50 (2): 449–472.Google Scholar
  33. 33.
    Venables, A. J., and H. J. Shatz (2000). The Geography of International Investment. Policy Research Working Paper 2338. World Bank, Washington, D.C.Google Scholar

Copyright information

© Kiel Institute for World Economics 2005

Authors and Affiliations

  • Sascha O. Becker
    • 1
    Email author
  • Karolina Ekholm
    • 2
  • Robert Jäckle
    • 3
  • Marc-Andreas Muendler
    • 4
  1. 1.Center for Economic StudiesUniversity of MünchenMünchenGermany
  2. 2.Stockholm School of EconomicsStockholmSweden
  3. 3.Ifo InstituteMünchenGermany
  4. 4.University of CaliforniaSan DiegoUSA

Personalised recommendations