26 jui 2008
Economic opening and the demand for skills in developing countries
A policy reform such as trade liberalisation can accelerate structural change in an economy, causing an exogenous shift in relative factor demands. For some developing countries, the result may be an increase in skills demand associated with the adoption of newly available foreign technology and lower-cost imported capital goods. This demand shift may be permanent or only temporary, but in either case the skills supply should eventually increase in response to higher returns. One concern, however, is that with an initially highly skewed distribution of education the skilled labour supply adjustment may be prolonged; likewise any transitional increase in skill-based wage inequality.
26 jui 2008
Human capital formation and foreign direct
This article synthesises a selected literature on human capital formation and foreign direct investment (FDI) in developing countries. The aim is to take a bird’s eye view of the complex linkages between the activities of multinational enterprises (MNEs) and policies of host developing countries. In doing so, general trends, best practices and policy experiences are extracted to evaluate the current state of knowledge. The literature indicates that a high level of human capital is no doubt one of the key ingredients for attracting FDI, as well as for host countries to gain maximum benefits from their activities. Most developing countries, however, underinvest in human capital, and the investment that is actually taking place is unevenly distributed across countries and regions that have adopted different human resource development (HRD) policies. To improve human capital formation and thus to attract more FDI would therefore require a more coherent approach that takes host country constraints such as limited budgetary resources into account. One such approach is to provide strong incentives for MNEs and Investment Promotion Agencies (IPAs) to participate in formal education and vocational training even for workers employed by domestic firms. This allows HRD to be flexible and demanddriven. Another policy option is to facilitate human resource development (HRD) for small and medium-sized domestic enterprises which usually do not invest sufficiently in training of employees although these enterprises stand to gain most from education and training. In addition, FDI promotion policies can target high value-added MNEs that are more likely to bring new skills and knowledge to the economy that can be tapped by domestic enterprises. Lastly, it is important that key components of HRD policies, i.e. formal schooling and vocational education and training policies (post-formal schooling), are well coordinated so as to equip students with knowledge and skills that will later be complementary to training opportunities provided in the labour market.
26 jui 2008
FDI and economic growth in less developed countries
During the 1960s and 1970s, foreign direct investment (FDI) and the activities of multinational enterprises (MNEs) in less developed countries (LDCs) were generally viewed unfavourably, often being considered exploitative and as leading to worsening labour market conditions and job losses. However, there was a gradual shift in perception during the 1980s and 1990s, with increasing recognition of positive features of FDI such as technological spillovers and the increase in demand for domestic industry. Hence many countries, including LDCs, have introduced measures such as favourable tax treatment for foreign firms in order to attract FDI2. Against this background, FDI flows to LDCs have grown rapidly, increasing from 0.9 per cent of LDCs’ combined GDP in 1990 to a peak of 4.1 per cent in 1999, before declining slightly to 3.3 per cent in 2003 (World Bank, 2005). This article surveys the theoretical and empirical literature that describes the role of FDI in the economic growth of LDCs, and extracts its policy implications.
26 jui 2008
Investment climate, capabilities and firm performance
The World Business Environment Survey (WBES) provided a unique look at the impact of the investment climate on enterprise performance, employing a standard core questionnaire to more than 10 000 firms in 80 countries between late 1998 and mid-2000. This paper examines results of a special module of the survey administered in 28 of the WBES countries that focused on issues of competition, trade and firm capabilities in terms of technology and worker education and training. It confirms that key attributes of the investment climate such as corruption, financing, tax administration, regulations and policy uncertainty all matter in explaining firm performance as measured by sales growth, employment growth and investment growth. Further, excessive labour regulation is negatively associated with both employment and investment growth. The new data on firm capabilities suggest that firm investments in technology and skills are also critically associated with firm performance. Investment in technological capacity strongly relates to sales growth, while international technological acquisition relates clearly to employment and investment growth. Training matters as well, and it is quite clear that investments in private training services are significantly associated with all dimensions of firm growth. What is equally clear is that public training bears no significant relationship with firm performance. Firms that make no investments in training appear disproportionately influenced by three types of market failure. This link has direct implications for governments as they shape technology policy and training policy.
26 jui 2008
MNE Spillovers in Developing Asian and Latin American Countries
This article explores the main trends of multinational enterprise (MNE) spillovers involving technology and human resources development, with special attention to policy implications, in the developing countries of Asia and Latin America with the Caribbean. Developing Asian countries have dynamically attracted foreign direct investment (FDI) and have been successful in instituting policy measures to enhance MNE spillovers, with positive impacts on domestic productivity. Latin American countries have lagged behind developing Asian countries as regards enhancing MNE spillovers. Despite a convergence of the inward FDI trend in the two regions, with the recent catching-up trend of Latin American countries, the latter region shows more limited spillovers. Selected research findings are surveyed and various policy measures suggested, particularly in relation to two policy issues: i) complementarity, co-ordination and synchronisation; and ii) targeting specific firms, industries and HRD (mostly in training and education).