FDI & Jobs

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Interest in the study is motivated by two circumstances in the world today:

  • First, ILO research shows that there has been a decline in the employment content of growth since the late 1990s – in other words, the “employment threshold” of growth, or the rate of output growth required for net employment creation to occur has risen.

  • Second, the IMF documents historically low levels of global savings and investment at this stage of the business cycle.

The consequence of these two trends is that the nexus of growth, investment, and employment creation appears to have weakened. While there may be many reasons for this to have occurred, one factor might involve the employment content of foreign direct investment (FDI).

For example, while the recent UNCTAD World Investment Report shows a resurgence of FDI, previous such reports have noted a rising share of FDI that is engaged in mergers and acquisitions, rather than in “greenfield” investments. High levels of foreign investment, therefore, could be consistent with minimal employment creation. (The counter-argument that FDI preserves jobs that might otherwise have been lost in both the host- and home countries is acknowledged.)

One question that arises in this context is the extent to which national agencies for investment promotion make explicit reference to the objective of employment creation when policies are put in place for the purpose of attracting FDI.

The initial task is to undertake an empirical stocktaking of the degree to which the employment objective is an explicit criterion of investment policy. From this, it will be useful to know just how that criterion is expressed – e.g. as merely a desirable objective, or one to which explicit incentives are attached or, indeed, sanctions defined if employment targets are not met. Another way in which an employment objective could be met could be policies that encourage foreign firms to develop contractual relations with firms in the domestic economy.