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Relocation has recently raised renewed concerns in Europe, being seen as reducing employment. This article examines the characteristics of relocation, the factors driving relocation and related policy issues. The authors argue that a number of factors foster relocation but there are also important reasons why firms stay put. For the moment, relocation and its negative effects on employment have been more contained than often assumed. However, certain regions and sectors have been heavily affected. Also, foreign investment is moving into more sophisticated product markets, and future impacts on Europe may be more severe. Subsequently, it is argued that relocation processes cannot simply be left to the market. Policy options are discussed in relation to three challenges: reducing incentives for relocation; what to do when relocation takes place; and how to deal with the threat of relocation and attempts to play off against each other workers in different countries.
