International mobility of jobs--Diversion from Western to Eastern locations?

This contribution discusses to what extent the expansion of German firms in Central East European (CEE) leads to FDI diversion from traditional host countries. Diversion is defined as reduction of FDI in absolute terms in traditional host regions as a consequence of expansion in CEE countries. The analysis is based on a Bundesbank micro data set (MIDI). The data indicate that expansion in the East is complementary rather than substitutive to FDI at traditional locations both in the EU periphery and the Core EU. Firms expanding foreign operations in general do so at CEE locations as well as in Western and Southern Europe. Poor performance at traditional locations in Western and Southern Europe rarely goes along with expansion in the East. Mobility of production and jobs from traditional to "new" locations is limited. There is strong heterogeneity of FDI firms to be observed with regard to employment performance in the regions considered.