The Effects of inward FDI on Regional Employment in Europe

This paper explores whether and to what extent inward FDI is able to affect regional employment, a complex issue often discussed in policy debates but still scarcely explored in the scientific literature. The paper addresses the following research questions: i) Is regional (sub-national) employment significantly affected by FDI in the EU-27 context? ii) Are the results significantly different across different groups of regions (Eastern, Western, Northern and Southern EU regions)? iii) Is sectorial employment differently affected in the above groups of regions? We explore these issues empirically by using an unbalanced panel of 270 EU regions, seven manufacturing and services sectors, and three periods of time. Overall, we find that FDI inflows are employment-expanding in all economic sectors, with the exception of the construction industry. Positive effects on employment are detected, on average, in Northern and Western EU regions, but not in Central and Eastern European regions and in Southern ones.