Foreign direct investment and the labour market in Vietnam's services sector

Inward foreign direct investment (FDI) has played a crucial role in local labour markets, contributing to poverty alleviation and economic development across many host countries. While the evidence of higher female representation within foreign firms is well documented, examining spillover effects of FDI on domestic firms’ female employment remains largely under-explored. This study attempts to fill the gap both theoretically and empirically. Our theoretical model shows that FDI presence simultaneously exerts two contrasting forces on domestic firms’ expected female employment, namely a direct spillover effect and an indirect cut-off effect. We then specify and estimate an empirical model, using a rich firm-level panel dataset of a fast-growing service industry in Vietnam. The data suggest that on average, foreign firms are twice more female-intensive and the estimation results reveal strong evidence of positive spillovers from FDI. The effect is profound among privately owned firms, while being insignificant among state-owned counterparts. Our findings carry major implications to local workforce, firms and policymakers concerning the labour market effects of inward FDI.

This paper analyzes the effects of foreign direct investment on wages paid by domestic firms in the Italian manufacturing sector over the period 2002-2007. In particular, the authors investigate the im- pact of multinational enterprises on wages paid by local firms which operate in the same industry, known and horizontal wage spillovers, or have linkages with multinational enterprises in both downstream and upstream industries, known as vertical wage spillovers. By using a large panel dataset, consisting of 551,000 observations, the authors find evidence of wage spillovers only at inter-industry level and, more specifically, for those firms who supply their goods to multinational enterprises, described as backward wage spillovers. Moreover, findings suggest that the wage spillover effect is strongly affected by the technological gap between local and foreign firms: only workers employed in domestic firms with a low- medium technological absorptive capacity seem to benefit from the presence of multinational enterprises in terms of higher wages.

(Differential Effects of FDI on the SMEs and Wage Premium for Skilled Labor)

ABSTRACTThis paper explores the role of inward foreign direct investment (FDI) as a determinant of domestic firms’ wages, namely wage spillovers. We first construct a theoretical model to demonstrate that the presence of FDI firms affects domestic firms’ expected average wages via productivity spillovers and a cut-off capability. We then estimate FDI-induced wage spillovers by employing IV-GMM estimator with a five-year panel dataset of a growing service industry in Vietnam. Despite FDI firms on average pay 2.25 times that of domestic firms, they put a downward pressure on domestic firms’ wages. A one percent increase in FDI presence causes domestic firms to cut average wages by 2.03 percent. The estimations also find that firm-specific features are attributable to significant differences in their wages as well as FDI-linked wage spillovers.

This paper examines the impact of FDI on wages paid by domestic private firms in Vietnam. The existing literature has examined the impact of foreign firms on domestic firms' wage levels within an industry. We expand on the literature by examining inter-industry linkages as an additional conduit for wage spillovers. There is strong evidence of horizontal wage spillovers from foreign firms to domestic private firms in Vietnam, despite different labour market conditions and firms' characteristics. Vertical wage spillovers exist, but depend on the specific characteristics of firms and industries. A further finding is that training activities facilitate wage spillovers.

This paper examines whether the existence of externalities associated with foreign direct investment (FDI) benefits the domestic firms of Indian manufacturing industries. Empirical findings reveal that local firms benefit from vertical foreign presence, whereas the horizontal foreign presence at the industry level could not substantially raise the value addition of labor across Indian industries. The absorptive capacity of domestic firms is highly relevant to reap the benefit from foreign presence, and could act as a precondition for incorporating the benefit of FDI externalities. Higher concentration and a greater size of the domestic market facilitate to raise the productivity spillovers from foreign presence. Furthermore, the FDI-technology spillovers seem to be higher for RD Wang and Blomstrom, 1992). The introduction of a new technology into a given market may be too expensive and risky for a domestic firm to follow, because of the cost inherent in acquiring its knowledge and uncertainty of the results that may be obtained (Crespo and Fontoura, 2007). If a technology is successfully used by a MNE, then domestic firms will be encouraged to adopt such technology. Barrios and Strobl (2002) suggest that the relevance of this effect increases with the similarity of the goods produced by the two types of firms in case of spillover related to product and process technology.FDI spillovers could be occurred, when the possibility of domestic firms hiring of MNEs workers, who have knowledge and experience of the technology and are able to apply this technology in domestic firms (Fosfuri et al., 2001; Glass and Saggi, 2002). However, the possibility of negative impact arising through this channel could not be avoided, as MNEs may attract best workers from domestic firms by offering higher wages and salaries (Sinani and Meyer, 2004). In addition, the influence of labor mobility on the efficiency of local firms is difficult to evaluate, as it involves tracking the workers in order to investigate their impact on the productivity of other workers (Saggi, 2002).2 The remaining important channels of FDI spillovers are exports, competition, and forward-backward linkages with domestic firms, etc.3FDI and technology imports could be recognized as alternative channels for technology spillover (Kanturia, 2001, 2002; Behera et al. …

I. INTRODUCTION Even though foreign acquisitions of U.S. assets are predominantly in service sector industries, research on foreign takeovers of U.S. domestic firms has focused on manufacturing firms. As foreign takeovers and new establishments in service sector industries have grown in importance (see Figure 1), research on service sector foreign direct investment (FDI) has fallen behind in part because service FDI and trade in service sector industries are not measured as well as those in the goods producing sector (Jensen 2011). Our paper analyzes the comparative advantage characteristics of foreign takeovers and new establishments in the U.S. service sector providing an insight on service sector FDI in the United States. Economic policies on service sector industries sometimes include large restrictions on foreign investors, particularly in the areas of public utilities, transports, financial services, and wholesale/retail trade. These restrictions have been used in cases such as opposition to an acquisition of a U.S. port by investors in Dubai and refusal to ease restrictions requiring that U.S. airlines must be at least 75% owned by U.S. citizens (Golub 2009). These types of policies may be misguided especially if foreign ownership brings increases in efficiency to those firms and their industries. Moreover, foreign investments in service sector industries may boost the productivity of downstream users and upstream suppliers in manufacturing (Markusen, Rutherford, and Tarr 2005; Arnold, Javorcik, and Mattoo 2011; Javorcik and Li 2013). More research is needed to better understand FDI in U.S. service sector industries and help guide policy. [FIGURE 1 OMITTED] Previous research by Feliciano and Lipsey (2015), shows that both foreign acquisitions and new foreign establishments in manufacturing tend to be in industries of investing country's revealed comparative advantage (RCA) in exporting. Moreover, new foreign-owned establishments tend to be in industries of U.S. revealed comparative disadvantage. This suggests that foreign investors in the manufacturing sector bring intangible assets or skills that make them more competitive. The relationship between foreign takeovers and investments in new foreign establishments and RCA may be different in the service sector because the motivation for foreign investment in service sector firms is different from foreign investment in the manufacturing firms. Decisions on FDI in manufacturing are based on trade costs, coordination costs, and market size. Services are not storable, and thus the provision of some services requires geographic proximity. This feature makes direct investment in service sector necessary as opposed to cross-border trade. Bhattacharya, Patnaik, and Shah (2012) develop a model for the choice of trade and FDI in the service sector and find that, contrary to FDI in manufacturing, less productive firms may engage in FDI in the service sector. The relationship between foreign acquisitions and new foreign establishments in the service sector and the comparative advantage of the country of ultimate beneficial owner (UBO) may not be positive. We analyze data on foreign takeovers of existing U.S. firms and newly formed foreign-owned firms (greenfields) in service sector industries outside of finance, insurance, and real estate from 1998 to 2008 from the Bureau of Economic Analysis (BEA) U.S. Department of Commerce. BE A data are more complete and have more detailed information than the Thomson Financial Securities data, widely used in the study of foreign acquisitions. Unlike the Thomson Financial Securities data, BEA data include smaller not publicly traded firms, contain the value of assets acquired in all transactions, and have information on new foreign establishments. (1) To our knowledge, this is the first study to estimate a relationship between foreign takeovers and new foreign firms, and the RCA of the country of UBO in the U. …

The objective of this paper is to investigate the effect of foreign direct investment on average wages paid by domestic manufacturing firms in Kenya. Specifically, the paper aims at identifying the transmission channels through which wage spillovers from foreign direct investment occur as well as the impact of technology gap and firm size on the behaviour of the spillover transmission channels. Employing panel data obtained from the World Bank Enterprise Surveys covering the period 2007–2018 and using fixed effects and Two-Step System GMM, we analyzed both horizontal and vertical spillover channels for wage spillovers. Findings from estimations based on all domestic firms indicated that there were no significant wage spillovers from FDI. However, when the technology gap was considered, domestic firms with low technology gaps with foreign-owned firms showed statistically significant positive wage spillovers via backward linkage, demonstration effects, and labour mobility channels and statistically significant negative spillovers via the competition effects channel. Finally, the results showed that firm size had no impact on the behaviour of various wage spillover transmission channels examined.

We investigate the effects of regional and industrywide foreign presence and foreign direct investment (FDI) on the export volumes of Ukrainian manufacturing firms using unpublished panel data from 1996-2000. Foreign presence through FDI may have negative competition effects on domestic firms' performance; at the same time, domestic firms' productivity may be increased by technology transfer or training and demonstration effects. From a Cournot competition model that includes negative competition and positive technology spillover effects, we hypothesize that foreign presence and FDI might positively affect domestic firms' output and exports. Our estimation results support these hypotheses, suggesting in particular that large firms and durable goods producers benefit most from foreign presence and investments.

FDI and import competition and domestic firm's capital structure: Evidence from Chinese firm-level data

We study cultural spillovers from multinational corporations (MNCs) to domestic companies in the information technology (IT) sector of Costa Rica. Using firm-level panel data for 2001–2011, we explore to what extent domestic firms’ female labour share increases as a result of business operations of MNCs. We find evidence of two channels for cultural spillovers from foreign direct investment (FDI) to domestic IT firms influencing higher shares of female employment: learning (imitation) effects through labour mobility, which allows former MNC employees working in domestic firms to apply skills and gender practices from their previous work experience, and demonstration effects with the presence of MNCs (through competition in the labour market), which include imitation of social norms and values of MNCs by local firms. No evidence was found for a relationship between backward linkages (purchases) of MNCs from domestic suppliers and female labour share. To promote greater participation by women in labour markets through FDI attraction, strengthening cultural spillovers would require implementing FDI promotion policies to (i) enhance the absorptive capacity of domestic IT firms, (ii) attract IT MNCs with greater potential to generate spillovers, and (iii) foster a favourable national investment climate for enhancing business interactions between IT MNCs and domestic IT firms.

Does foreign direct investment affect domestic firms’ social security contributions?

University ties are an important innovation resource for both foreign direct investment (FDI) firms and local firms. Since these university connections involve local personal ties, which are established through long-term efforts that require social and cultural embeddedness, it is probably more difficult for FDI firms to establish such ties than it is for local firms. However, FDI firms, which have two advantages, size and R&D capacity, can possibly compensate for that disadvantage. This paper contributes to the current innovation and international business literature by comparing the effect of university ties on innovation between local firms and FDI firms due to their heterogeneous resources and capabilities. Specifically, this paper examines the joint influence of university ties, R&D capacity, and firm size in both FDI firms and local firms in China. The results show that R&D capacity and firm size have different moderating effects on FDI firms and local firms, suggesting that internal capability and external personal relationship with universities are substitutes in local firms but complementary in FDI firms. Our results are relevant for practicing managers because they show that acquiring the knowledge in universities is contingent on firm characteristics as well as ownership types.

This paper examines the existence of externalities associated with foreign direct investment (FDI) in a host country by exploiting firm-level panel data covering the Polish corporate sector. We distinguish between horizontal spillovers (from foreign to domestic firms operating in the same industry) and two types of vertical spillovers: backward (from FDI in downstream industries) and forward spillovers (from FDI in upstream industries). The main findings are as follows. Local firms benefit from foreign presence in the same industry and in downstream industries. The absorptive capacity of domestic firms is highly relevant to the size of spillovers: vertical spillovers are larger for R&D-intensive firms, while firms investing in other (external) types of intangibles benefit more from horizontal spillovers. Competitive pressure facilitates backward spillovers, while market power increases the extent of forward spillovers. Horizontal spillovers are particularly strong in services, while the remaining results, including backward spillovers and the role of absorptive capacity and competition, are mainly driven by manufacturing. Host country equity participation in foreign firms is consistent with higher unconditional productivity spillovers to domestic firms. A number of robustness checks yield results qualitatively similar to those obtained in the baseline specification.

We examine to what extent domestic firms reap differential productivity gains from the presence of manufacturing affiliates of multinational firms in the home country (FDI spillovers), in the context of simultaneous participation in international trade through exporting and importing. FDI spillovers can occur within the industry (horizontal) and across industries due to client (forward) or supplier (backward) linkages of multinational firms, but the mechanisms underlying spillover effects may be attenuated if local firms are less reliant on inputs, clients, and competition in the domestic market. Fixed effects panel analyses on a sample of 4594 domestic Belgian firms during 2000–2007 reveal positive effects from horizontal, backward, and forward FDI spillovers on the productivity levels of domestic firms, as long as these firms do not engage in international trade. Horizontal spillovers from FDI are weaker for firms engaging in trade, while forward FDI spillovers do not benefit importing firms. Two-way traders benefit least from FDI spillovers. Forward and backward spillovers, are enhanced by human capital levels in local firms, while horizontal spillovers are reduced. The findings are broadly consistent with the notion that trade engagement and inward FDI can be substitutes in their effects on domestic firms’ productivity.