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Where Enterprises Lead, People Follow? Links Between Migration and German FDI

Author

Listed:
  • Claudia Buch

    (Eberhard Karls Universität Tübingen = University of Tübingen)

  • Jörn Kleinert

    (Eberhard Karls Universität Tübingen = University of Tübingen)

  • Farid Toubal

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Standard neoclassical models of economic integration are based on the assumptions that capital and labor are substitutes and that the geography of factor market integration does not matter. Yet, these two assumptions are violated if agglomeration forces among factors from specific source countries are at work. Agglomeration implies that factors behave as complements and that the country of origin matters. This paper analyzes agglomeration between capital and labor empirically. We use state-level German data to answer the question whether and how migration and foreign direct investment (FDI) are linked. Stocks of inward FDI and of immigrants have similar determinants, and the geography of factor market integration matters. There are higher stocks of inward FDI in German states hosting a large foreign population from the same country of origin. This agglomeration effect is confined to higher-income source countries.

Suggested Citation

  • Claudia Buch & Jörn Kleinert & Farid Toubal, 2006. "Where Enterprises Lead, People Follow? Links Between Migration and German FDI," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00311575, HAL.
    • Handle: RePEc:hal:cesptp:hal-00311575
    DOI: 10.1016/j.euroecorev.2005.11.002
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    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F0 - International Economics - - General
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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