FDI inflows spillover effect implications on the Asian‐Pacific labour productivity

Abstract

AbstractThis study examines Foreign Direct Investment (FDI) inflows spillover effects influence on the labour productivity of the most important Asian‐Pacific countries (Malaysia, Indonesia, Singapore, Philippines, Thailand, China, Japan, Korea, India, Australia and New Zealand). The modified‐intensive growth theory model that is based on labour productivity (out per worker) is employed. Both growth accounting and econometric approaches are combined to estimate input terms (explanatory variables) parameters in the first step followed by the second step that plugs the estimated coefficients into the modified model to calculate the productivity indicators. The results show that the FDI inflows spillover effects are input‐driven which was generally more predominant than total factor productivity (TFP) per worker (intensity) growth that is expressed the combined contribution of inputs' qualities technological progress or what so‐called productivity‐driven. TFP intensity growth results show that most of the selected Asian‐Pacific counters economic growth is considered to be an input‐driven and highly dependent on absorptive capacity per worker. This indicates that the FDI spillover effects (absorptive capacity) have a significant and low impact on these economies. However, the economies of Japan, South Korea and China showed productivity‐driven growth among Asian countries under study. Besides, Australia and New Zealand showed productivity‐driven as resource‐based economies. The technology transfers and human capital skills development or what so‐called FDI spillover effects contribute significantly in the cases of Japan, South Korea, and China among the Asian countries. For these countries to achieve the New Economic Model of development to sustain its long‐run economic growth, to be a high income and knowledge‐driven economy based on high‐skilled human capital, the productivity must be given top priority.