Home employment effects of EU firms' activities in Central and Eastern European countries

We examine whether or not affiliate production in Central and Eastern Europe (CEEC) affects factor demand in the EU, at the investing firm and sector levels. Using firm level data, we estimate parent labor demand elasticities for a number of manufacturing sectors, following a flexible cost function approach. We find evidence of inter-sector heterogeneity, but not of a substantially greater impact in "low-skilled" intensive sectors. Labor demand in the EU is affected by FDI in the CEEC, both at the investing firm and sector levels. It has a significant sector and non-sector component.