Foreign Direct Investment in Central and Eastern Europe: Employment Effects in the EU

We use firm-level data on Swedish multinationals to analyze how the recent expansion of affiliate employment in Central and Eastern Europe (CEE) has affected affiliate employment elsewhere. According to our results, employment in affiliates located in other low-wage countries in Europe decreased substantially as a consequence of the expansion in CEE. Furthermore, affiliate activities in these countries have become more sensitive to changes in labor costs as firms have set up production in CEE. We find that employment in Sweden and other high-wage European countries has also been affected, but these effects seem to be much smaller.