Analysis of the determinants, reasons and effects of offshoring on the employment and the economic structure in Germany

Internationally operating multinational companies (MNC) are important driving forces of the recent globalisation. Their influence on investment and employment is growing. Foreign direct investments (FDI) of firms in foreign countries can have two different basic motivations. On the one hand, firms relocate their production facilities or build new ones in order to serve new markets. These horizontal FDI are observed mainly between developed economies with similar factor endowments. On the other hand, firms can try to exploit the differences in factor prices between different countries. These so called vertical foreign direct investments are not bidirectional but have one direction. Companies in developed countries invest in less developed countries, i.e. in countries with different factor endowments.

In this report, offshoring is defined as the relocation of production to foreign countries. In this interpretation it includes vertical as well as horizontal foreign direct investments.

The purpose of this report is to find empirical results about the determinants and employment effects of FDI based on theoretical hypotheses. There will be three parts of the report. In a first step there will be an analysis of the determinants of offshoring. The emphasis will be to analyse sector- and regional-specific determinants. In a second step we will create sectoral and regional datasets which allow a study of the relationship between offshoring and employment in Germany. Of particular interest will be the level, the structure and the volatility of the employment. In a third step these analyses will be completed with research based on some firm-level datasets.