Foreign direct investment and employment in manufacturing and services sectors

Abstract

PurposeThis paper aims to examine both the cointegrating and causal relationships among inward FDI and the host country's employment in manufacturing and services sectors.Design/methodology/approachThis paper applies autoregressive distributed lag (ARDL) framework to test the cointegration and causality patterns using Singapore as a case.FindingsApart from the presence of a unique long‐run relationship, the findings also show evidence of long‐run causality, running from employment in manufacturing and services to FDI inflows, and from FDI inflows and services employment to manufacturing employment. Furthermore, there is evidence of short‐run causality showing strong FDI‐employment and employment linkages, predominantly from the manufacturing to services.Research limitations/implicationsOne likely area of future research is to extend this paper by using disaggregated data, e.g. FDI inflows by sector (manufacturing and services), and employment by the respective sectors.Practical implicationsManufacturing and services have been regarded as the “twin engines” of growth for the Singapore economy. As the economy is moving up the value chain from downstream to upstream activities, a significant proportion of foreign direct investment (FDI) has been attracted to the manufacturing and services sectors. The present study provides useful policy implications towards promoting foreign investment in emerging areas of and manpower development in both sectors of the economy.Originality/valueThis paper explores the possible interactions between FDI inflows and employment in manufacturing and services sectors as well as the employment linkages between manufacturing and services in Singapore.