Determinants of Employment Growth at MNEs: Evidence from Egypt, India, South Africa and Vietnam
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Determinants of Employment Growth at MNEs: Evidence from Egypt, India, South Africa and Vietnam SUMON KUMAR BHAUMIK1, SAUL ESTRIN2 & KLAUS E MEYER3 1
Brunel Business School, Brunel University, Social Sciences Building, Uxbridge, Middlesex UB10 9NW, UK. E-mail: [email protected] 2 London Business School, UK. 3 University of Reading, UK.
Many foreign investment operations into emerging markets are small, and are likely to have only a limited impact on the local economy. However, host governments often expect transfer of advanced technology from multinational enterprises (MNEs) operating in these markets to local firms by way of inter-firm mobility of skilled labourers. The extent of such transfers would be limited, among other factors, by the size of the pool of skilled labourers that can potentially be mobile between MNEs and local firms. This, in turn, is determined by employment growth at the MNEs. We develop an empirical specification that models this employment growth, by drawing on both the economics and international business literature. This model is then estimated using firm-level data from four emerging markets. We find that wholly owned foreign direct investment operations have higher employment growth, while local industry and institutional characteristics moderate the growth effect. This suggests that policies encouraging foreign investors to set up in form of joint ventures may not actually raise the benefits for the host economy. Comparative Economic Studies (2007) 49, 61–80. doi:10.1057/palgrave.ces.8100161
Keywords: MNE, employment growth, control, institutions JEL Classifications: O13, O33, J21, F23
INTRODUCTION Spillovers, in the form of technology transfer from a multinational enterprise (MNE) to local firms in the host country, are often proposed as an important rationale for establishing policy regimes conducive to foreign direct
SK Bhaumik et al Determinants of Employment Growth
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investment (FDI) in developing countries (Findlay, 1978; Borensztein et al., 1995). Technology transfer remains the cornerstone of the substantial literature on spillovers, though much of the evidence linking presence of MNEs to technological improvement of the local firms is indirect (Meyer, 2004).1 Empirical studies have typically examined the link between the extent of foreign ownership in a domestic firm or foreign presence in a sector on the level or change in the multifactor productivity in that sector (eg, Aitken and Harrison, 1999). Evidence favouring a positive relationship have been explained in three ways: (a) demonstration effect of the MNEs’ production processes on their local competitors, (b) improvement in the productivity of the firms that are in the supply chains of both the MNEs and the local firms, and (c) migration of labourers from MNEs to local firms either through employment or start-up entrepreneurial ventures. Direct evidence is the strongest in favour of the impact coming from the migration of labourers from MNEs to their local competitors. For e
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