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Foreign direct investment and labor demand by skill in Indonesian manufacturing firms

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Title: Foreign direct investment and labor demand by skill in Indonesian manufacturing firms
Authors: Matsuura, Toshiyuki Browse this author →KAKEN DB
Saito, Hisamitsu Browse this author →KAKEN DB
Keywords: Foreign direct investment
Labor market competition
Skill intensity
Issue Date: 30-Oct-2022
Publisher: Springer
Journal Title: Review of World Economics
Publisher DOI: 10.1007/s10290-022-00485-y
Abstract: A recent debate on globalization addresses the importance of skills for firms' performance in developing countries. Employing microdata from Indonesian manufacturing, we examine the externality effects of inward foreign direct investment (FDI) on labor demand by skill in local firms and identify the relative contribution of each effect to their skill structure. The results show that local firms replace unskilled workers with skilled ones to enable transactions with foreign firms in downstream industries. However, severe labor market competition for skilled workers with foreign firms hinders them from upgrading the skill structure. Moreover, severe product market competition decreases demand for unskilled workers in local firms. Thus, an adequate supply of skilled workers is crucial for the better performance of local firms. The results also highlight the necessity of policies to mitigate the negative impact of inward FDI on unskilled employment in the host economy.
Type: article
Appears in Collections:公共政策学教育部・公共政策学連携研究部 (Graduate School of Public Policy / Faculty of Public Policy) > 雑誌発表論文等 (Peer-reviewed Journal Articles, etc)

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