Quotation Leibrecht, Markus, Bellak, Christian, Riedl, Aleksandra. 2008. Labour costs and FDI-flows into Central and Eastern European Countries: a survey of the literature and empirical evidence. Structural Change and Economic Dynamics 19 (1): 17-37.




We analyse the determinants of Foreign Direct Investment (FDI) across selected Central and Eastern European Countries (CEECs) focusing on labour costs.We propose a labour cost measure which is relevant for the location decisions of Multinational Enterprises. A panel-gravity model approach is used to empirically assess the impact of market-related and cost-related location factors. Our dataset comprises bilateral net-FDI flows between seven home and eight host countries for the period of 1995–2003. Results suggest that higher unit labour costs as well as higher total labour costs affect FDI negatively, whereas higher labour productivity impacts positively on FDI. Our results support the choice of unit labour costs as the proper measure of labour costs, not least to avoid an omitted variable bias resulting from the exclusion of labour productivity. Standardised beta coefficients imply that all cost factors taken together (distance, taxes, labour costs) exert a considerable influence upon the decision to invest in the CEECs. In order to compensate for the rising wage costs in many CEECs, future public policy should contribute to improvements in labour productivity via investments in production-related infrastructure.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Structural Change and Economic Dynamics
Language German
Title Labour costs and FDI-flows into Central and Eastern European Countries: a survey of the literature and empirical evidence
Volume 19
Number 1
Year 2008
Page from 17
Page to 37
Reviewed? Y
URL http://ideas.repec.org/a/eee/streco/v19y2008i1p17-37.html


Leibrecht, Markus (Former researcher)
Bellak, Christian (Details)
Riedl, Aleksandra (Former researcher)
Institute for Public Sector Economics IN (Details)
Research Institute for International Taxation FI (Details)
Institute for Economic Policy and Industrial Economics IN (Details)
Institute for Economic Geography and GIScience IN (Details)
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