Title: Foreign Direct Investment and Labour Productivity in South Africa
Abstract: The impact of Foreign Direct Investment (FDI) on domestically owned firms
in developing countries has been a topic of much debate in the literature. The
popular belief is that there is a substantial positive link between foreign
investment and domestic enterprises. It has been argued that FDI provides
access to advanced technologies and other intangible assets that can spillover
to local manufacturing industries. Existing empirical studies in the area can be
divided into two groups - one which concludes that FDI improves the
productivity of domestic firms, and the other which argues that the impact is
unclear or even negative. However, little is known about the effect of FDI on
domestic firms in the African context.
Noting this gap, this paper uses firm level unbalanced panel data from
South Africa to examine the impact of foreign investment on labour
productivity of domestic firms. The estimates presented here show that while
foreign firms improve the productivity of their own workers, there is no
evidence of either positive or negative spillover effect form FDI on
productivity of labour in local firms at either the national or regional level. This
finding is consistent with a meta analysis of the existing empirical literature on
the topic. The meta analysis shows that the estimates of FDI spillovers are
systematically affected by the specific research approach adopted. This paper
conducts a detailed sensitivity analysis using alternative specifications and
taking into account alternative definitions of foreign presence, but the results
are robust and show that there is no effect of FDI on labour productivity in
domestically owned firms.
-- Relevance to Development Studies --
Unlike many previous researches regarding the spillover effects of foreign
investment, this study gives due attention to different estimation concerns that
might be a source of potential bias while analysing firm level data. It also
points out some research design factors that could determine the findings in
ex-ante stage using meta analysis. In addition, it classifies foreign presence
based on ownership status and examines whether FDI spillover is
geographically limited. Therefore, it contributes as alternative source of
evidence for better understanding the relation between foreign investment and
labour productivity of domestic firms in developing countries.
Publication Year: 2010
Publication Date: 2010-12-17
Language: en
Type: article
Access and Citation
Cited By Count: 3
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