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The Impact of Territorially Concentrated FDI on Local Labor Markets: Evidence from the Czech Republic

This paper investigates the impact of a large and territorially concentrated foreign direct investment (FDI) inflow on local labor market outcomes in the Czech Republic. A conditional difference-in-differences technique is employed for an estimation of the impact and block bootstrapping is used for computing consistent standard errors. The results indicate a positive and statistically as well as economically significant effect of a large investment project on the local unemployment outflow rate, which is driven mainly by increases in the aggregate unemployment exit hazard rates for unemployment durations smaller than nine months. Subsequent to the investment, the unemployment rate decreased by 1.7Â percentage points and the employment rate increased by 3.7Â percentage points in the host district. However, the impact on long-term unemployed was negligible as the exit hazard rates for durations longer than nine months remain unchanged. Moreover, a simple cost-benefit analysis suggests that investment incentives paid from a state budget would pay off only in a horizon of twelve years.