STRATEGIC IMPACT OF INWARD FOREIGN DIRECT INVESTMENTS ON THE LABOUR MARKETS OF DEVELOPING ECONOMIES

Abstract

Foreign direct investment (FDI) is a key element in this rapidly evolving international economic integration, also referred to as globalization. According to the Organization for Economic Co-operation and Development - OECD (2008) FDI provides a means for creating direct, stable and long-lasting links between economies. Under the right policy environment, it can serve as an important vehicle for local enterprise development, and it may also help improve the competitive position of both the recipient (“host”) and the investing (“home”) economy. This paper presents an articulated review of results concerning the impact of foreign direct investments on labour productivity. The focus basically is on the labour productivity differences that exist between the foreign and domestic companies and on the way these differences evolves in the host countries. Findings show that national companies generally increase their labour productivity due to the technological and managerial competences that they borrow from the foreign companies established in their country and also because they have to protect themselves from the new competition as well as comply with the growing demand coming from the new investors. Due to their higher labour productivity, foreign firms offer higher wages to their employees. This also determines a growth in the salaries of national companies’ skilled workers. Therefore the wage inequalities and skill differences grow in countries that receive FDI. However the overall effect of a growing productivity is most often translated into job creation and regional development.

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