Go Out for Jobs? Foreign Investment Projects and their Impact on Firms’ Domestic Employment Growth

Abstract

Many governments, especially those of emerging economies, have policies in place to stimulate their firms to internationalize and engage in outward foreign direct investment (OFDI). Although it may serve interests other than that of economic development, it is unclear to what extent it contravenes policy aimed at raising employment, an area particularly important for countries if they are to make progress on sustainable development goals. This study looks at three dimensions of OFDI promotion policies typically adopted by emerging economy governments, as they encourage firms to choose acquisitions over greenfield investments, and support large firms with considerable presence in a region of interest as their national champions. I study how these firm- and investment-related characteristics affect how emerging market multinationals grow their own domestic employment after undertaking a specific foreign investment project, whereby I draw on the resource-based view and agency theory to formulate hypotheses. Analyzing detailed data pertaining to 409 such projects by firms from 13 emerging economies, this study finds support for these hypotheses. An important implication is that key elements of OFDI promotion efforts such as China’s ‘Go Out’ policy tend to have negative consequences for domestic employment, thus revealing important policy trade-offs.