Indexed on: 01 Dec '05Published on: 01 Dec '05Published in: Review of World Economics
Using data on German and Swedish multinational enterprises (MNEs), this paper analyzes determinants of location choice and the degree of substitutability of labor across locations. Countries with highly skilled labor strongly attract German but not necessarily Swedish MNEs. In MNEs from either country, affiliate employment tends to substitute for employment at the parent firm. At the margin, substitutability is the strongest with respect to affiliate employment in Western Europe. A one percent larger wage gap between Germany and locations in Central and Eastern Europe (CEE) is associated with 760 fewer jobs at German parents and 4,620 more jobs at affiliates in CEE. A one percent larger wage gap between Sweden and CEE is associated with 140 fewer jobs at Swedish parents and 260 more jobs at affiliates in CEE.