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Employment Effects of Foreign Direct Investment in Central and Eastern Europe

Author

Listed:
  • Ingo Geishecker
  • Gabor Hunya

    () (The Vienna Institute for International Economic Studies, wiiw)

Abstract

The paper starts with a discussion of the development of the number of manufacturing sector jobs in the framework of economic transformation and industrial restructuring in Central and Eastern Europe. Over the past decade, domestically-owned manufacturing companies reduced the number employed while foreign-owned enterprises expanded that number. Job losses due to FDI have resulted from restructuring of privatized state-owned companies. A reduction of employment has also resulted from foreign companies cutting domestic supplier linkages after taking over state-owned enterprises. A database with indicators of foreign affiliates allows to identify countries and industries with various levels of foreign penetration and employment development. Foreign affiliates show higher labour productivity and better capital endowment and use more up-to-date technology than domestic companies; as a result, they tend to increase the performance in the host economy as a whole. Ownership-specific differences in productivity are clearly reflected in relative wages. Young skilled workers employed by foreign enterprises have higher wages relative to both their unskilled and skilled older colleagues and also relative to their counterparts in domestic firms. The more efficient matching of new technologies and new skills in foreign than domestic enterprises has benefited younger generations. A major question for the future is whether the present high regional concentration of FDI within the countries is likely to diminish. Agglomeration effects work against this happening, while improvements in transport and telecommunications make it more feasible. Thus, for instance, larger towns in peripheral regions have started receiving more FDI after becoming accessible by motorway. In the second part of the paper, empirical results from a gravity model are discussed; these suggest that FDI in non-manufacturing sectors tends to be of a horizontal type, while this is less the case in manufacturing. With a modest pace of convergence towards the level of GDP per head in the EU-15, non-manufacturing FDI is likely to remain constant or even decline, except in the Czech Republic, where non-manufacturing FDI would grow at a similar rate as in manufacturing. With stronger convergence, FDI in non-manufacturing is likely to show more robust growth. Further econometric analysis suggests that FDI is a significant determinant of the skill composition in the new EU members and is biased against skilled manual workers (i.e. FDI results in more employment of high-skill non-manual workers and low-skill workers). The magnitude of this effect is, however, modest and partly offset by other factors.

Suggested Citation

  • Ingo Geishecker & Gabor Hunya, 2005. "Employment Effects of Foreign Direct Investment in Central and Eastern Europe," wiiw Research Reports 321, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:rpaper:rr:321
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    File URL: https://wiiw.ac.at/employment-effects-of-foreign-direct-investment-in-central-and-eastern-europe-dlp-348.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Jungnickel, Rolf & Keller, Dietmar & Peters, Heiko & Borrmann, Christine, 2008. "International mobility of jobs--Diversion from Western to Eastern locations?," Structural Change and Economic Dynamics, Elsevier, vol. 19(3), pages 260-271, September.
    2. Yousafzai, Arshad Hayat, 2014. "Exploring the Causality and Co-integration Relationship between FDI, GDP and Employment: A Case of Czech Republic," MPRA Paper 54827, University Library of Munich, Germany.
    3. Onaran, Ozlem & Stockhammer, Engelbert, 2008. "The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis for the manufacturing industry," Structural Change and Economic Dynamics, Elsevier, vol. 19(1), pages 66-80, March.
    4. VINTILA DENISIA & Popescu Raluca Georgiana, 2012. "The Effects Of Foreign Direct Investments On Employment In Central And Eastern Europe. Focus On Romania And Poland," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 81-87, July.
    5. Sandrine Levasseur, 2006. "Convergence and FDI in an enlarged EU: what can we learn from the experience of cohesion countries for the CEECS?," Documents de Travail de l'OFCE 2006-12, Observatoire Francais des Conjonctures Economiques (OFCE).
    6. Onaran, Özlem, 2007. "Jobless growth in the Central and Eastern European Countries. A country specific panel data analysis for the manufacturing industry," Department of Economics Working Paper Series 372, WU Vienna University of Economics and Business.
    7. repec:wfo:wstudy:26624 is not listed on IDEAS
    8. Gabor Hunya, 2008. "Austrian FDI by main Countries and Industries," FIW Research Reports series I-015, FIW.
    9. Özlem Onaran, 2008. "Jobless Growth in the Central and Eastern European Countries," Working Papers wp165, Political Economy Research Institute, University of Massachusetts at Amherst.
    10. repec:bla:worlde:v:39:y:2016:i:12:p:1947-1973 is not listed on IDEAS
    11. Enrico Marelli & Laura Resmini & Marcello Signorelli, 2014. "The Effects Of Inward Fdi On Regional Employment In Europe," Romanian Journal of Regional Science, Romanian Regional Science Association, vol. 8(1), pages 1-23, JUNE.
    12. Olu Ajakaiye & Afeikhena T. Jerome & David Nabena & Olufunke A. Alaba, 2015. "Understanding the relationship between growth and employment in Nigeria," WIDER Working Paper Series 124, World Institute for Development Economic Research (UNU-WIDER).
    13. A. Oznur Umit & H. Isil Alkan, 2016. "The Effects of Foreign Direct Investments and Economic Growth on Employment and Female Employment: A Time Series Analysis With Structural Breaks For Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 9(3), pages 43-49, December.
    14. repec:wfo:wstudy:26623 is not listed on IDEAS

    More about this item

    Keywords

    FDI; employment; EU enlargement;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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