Ruhr Economic Papers

Ruhr Economic Papers #268

Cross-border Investment, Heterogeneous Workers, and Employment Security – Evidence from Germany

by Ronald Bachmann, Daniel Baumgarten and Joel Stiebale

RWI, 07/2011, 36 S./p., 8 Euro, ISBN 978-3-86788-312-2



We analyse how foreign direct investment (FDI) affects employment security using administrative micro data for German employees. FDI intensity is measured at the industry level, which enables us to take into account the sum of direct effects at the investing firms as well as indirect effects of FDI that stem from competitive effects, input-output linkages, technology spillovers, and changes in factor prices. We account for both inward and outward FDI, and differentiate these two types of FDI by source and destination region, respectively. We also investigate whether specific worker groups are affected differently by FDI. We find that both inward and outward FDI at the industry level significantly reduce employment security. This is particularly the case for inward FDI coming from the western part of the European Union, as well as for outward FDI going to Central and Eastern Europe. The effects are quantitatively small overall, but sizeable for some worker groups such as old and low-skilled workers.

JEL-Classification: F21, F23, J23, J63

Keywords: Foreign direct investment; labour market transitions; duration analysis

Published as:

Bachmann, R., D. Baumgarten and J. Stiebale (2014), Foreign Direct Investment, Heterogeneous Workers, and Employment Security: Evidence from Germany. Canadian Journal of Economics 47 (3): 720-757.