FDI & Jobs

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Professional guidance provided for this study:
 

Please take a look at UNCTAD's WIR for various issues touching on the subject i.e. WIR 2005 pg 181 deals w/FDI in R&D and affects on host country labor.

Also this publication has a nice literature review
Author: Koji Miyamoto
Source: Technical Paper 211. Organization for Economic Co-Operation and Development (OECD), Paris, July 2003

This paper reviews the literature and findings on the role of human capital formation and skills development, both in attracting foreign direct investment (FDI) and in influencing the impact of FDI. The author concludes that not only is human capital a key prerequisite for benefiting from FDI, it is also very important for attracting FDI in the first place. Accordingly, polices that strengthen the stock of domestic human capital serve as useful FDI promotion strategies.

Andrea Anayiotos (IFC)


This has not been an area of focus for us, to date. two thoughts, both of which you are probably already familiar with:

1. The 2003 McKinsey report on FDI ("New Horizons") discusses extensively the relationship between FDI and jobs (see executive summary and synthesis chapters)

2. Technical Paper 211, OECD, Miyamoto Koji, Paris, July 2003: this paper reviews the literature on the role of human capital formation and skills development, both in attracting foreign direct investment (FDI) and in influencing the impact of FDI. The author concludes that not only is human capital a key prerequisite for benefiting from FDI, it is also important for attracting FDI in the first place. Accordingly, polices that strengthen the stock of domestic human capital serve as useful FDI promotion strategies.

Nigel Ntwose (World Bank)


It depends what is meant by employment objective as an explicit criterion of investment policy. Certainly governments seek FDI because they think that this is going to bring inter alia more jobs. And if you look at IPA annual reports, typically they make an employment case for FDI by providing statistics on how many workers are employed by MNEs. (OECD Economic Globalisation Indicators (OECD, 2005), pp. 66-67, include this kind of statistics.)

If you think on the other hand of performance requirements making mandatory the employment of x number of persons in order for the foreign company to be authorised to operate, these are banned by a number of investment treaties and are not a recommended practice by OECD more generally as most often being counter-productive. (Performance requirement accepted by the company as a condition to receive tax and other advantages is another matter.)

I do not know if this may help. I am putting my colleagues on copy who may have more or better answers.

Pierre Poret (OECD)


I'm afraid our FDI and Local Development reviews are not focused on stock taking the degree to which employment is an explicit objective of investment promotion. It's an interesting question. Basically everyone we talk to in the investment promotion business seems to have employment as an implicit objective, but of course often the full expected outcomes of investment promotion are not made explicit in documentation. I don't have any empirical evidence on this. 

Jon Potter (OECD)


Just a quick thought from the sideline: I haven't often heard of employment being cited as an explicit criterion for investment policy in OECD member countries, though Pierre is quite right that IPAs often like to promote their successes in terms of the number of new jobs created through greenfield investment. As also mentioned, this partly reflects that fact that FDI policy regimes in most of the OECD - except for a few prioritised sectors here and there - are pretty liberal. In other words, even if employment were an objective there'd not be much to "politicise" with - other than the aforementioned IPAs' promotion strategies and investment incentives. (The much fought-over auto plants are a case in point.)

Non-OECD countries are a different matter. In the context of our work with NEPAD and the Middle East and North Africa initiative we repeatedly come across countries which maintain elaborate screening and authorisation procedures for foreign direct investment. These often lay down a number of macroeconomic benefits criteria to be taken into account by regulators - including, in many cases, direct job creation and/or a need to avoid competition with local "job generators" such as the low-tech parts of the service sector. Moreover, they sometimes make the generosity of their overall investment incentives (though generally not the access to free economic zones, etc.) dependent on employment criteria.

Hans Christiansen (OECD)


Re your query, I would say that just about every country includes the objective of employment creation in its strategy to attract FDI, usually explicitly. A number of countries also make employment creation a performance requirement for receiving incentives, and in a few cases for the entry of FDI. This is a controversial area. Other employment considerations are also relevant in shaping FDI policy.

If you want a specific stocktaking of the degree to which the employment objective is an explicit criterion of investment policy, you might consider sending a short questionnaire to the members of the World Association of Investment Promotion Agencies.

I am copying this to my colleagues that work on the IPRs in case they want to add to the exchange.

Khalil Hamdani (UNCTAD)


You may wish to have a look at our Investment Compass - in the regulatory framework questionnaire we have taken up the issue of performance requirements, key workers scheme and other policy issues.

Fiorina Mugione (UNCTAD)


The investment gateway is a very practical tool and just describes investment procedures.

Frank Grozel (UNCTAD)