German Foreign Direct Investment and Wages
AbstractOver the last decade, German multinationals created about two million jobs abroad with increasing foreign direct investment (FDI). While there are many reasons for firms to go multinational and probably just as many for Germany's high unemployment, this paper aims to investigate the relationship between domestic labour costs and foreign direct investment. We apply a theoretical model for an econometric analysis examining the determinants of FDI using panel data of German firms' foreign capital stocks in 22 countries between 1994 and 2003. Estimating elasticities, we find that while domestic wages do not significantly influence total FDI by German firms, they positively affect the FDI stock in countries where cheap labour is abundant. Thus, although Germany's high labour costs are not the sole driver of foreign direct investment, they may accelerate the outsourcing of German jobs. --
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Bibliographic InfoPaper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 10/07.
Date of creation: 2007
Date of revision:
Foreign direct investment; wages; trade; German multinational firms;
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
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