31. Harnessing foreign direct investment for gender equality

Letizia Montinari

FDI can influence gender equality outcomes in host countries. It can contribute to the development of sectors that employ or have the potential to employ many women, such as services (e.g. professional services, hospitality, information and communication). It can also affect the employment and working conditions of local women through the activities of foreign affiliates of MNEs, such as recruitment, remuneration, promotion and other work practices (OECD, 2019[1]; 2022[2]). FDI can also influence gender outcomes in domestic firms through business linkages, competition and labour mobility. For instance, FDI could create jobs for women in domestic firms through the business opportunities along domestic supply chains. Evidence on these channels, however, remains limited to specific countries due to the lack of internationally comparable data (OECD, 2019[1]; OECD, 2022[2]).

The OECD FDI Qualities Indicators (Box 31.1) show that new establishments by foreign companies (e.g. greenfield FDI) are concentrated in sectors with smaller shares of women in both OECD and non-OECD countries. In the OECD area and in most regions, significant portions of FDI are directed to manufacturing, construction and, especially in resource-rich countries, mining and energy (Figure 31.1). Smaller shares of FDI are channelled into services, which globally employ larger shares of women. The indicators also show that the gap between earnings of women and men is on average higher in manufacturing and services. The gap tends to be lower in construction and mining and energy – sectors that employ relatively fewer and proportionally more higher-skilled women. These regional and sectoral aggregates hide significant variations between countries. Moreover, the indicators provide only a partial picture of the impact of FDI, as they reflect greenfield projects and not foreign mergers and acquisitions (i.e. a consolidation of companies through a merger or an acquisition).

In most countries foreign affiliates of MNEs are, on average, more productive and pay higher wages than domestic firms (OECD, 2019[1]; OECD, 2022[5]). This is because foreign firms tend to be larger and more technology-intensive, given their access to technologies and knowledge of the parent company (Javorcik, 2004[6]). Nonetheless, when looking at their performance in relation to various gender equality outcomes, the results are less clear-cut (Figure 31.2). In the OECD area and in all regions under analysis, foreign firms have on average higher shares of female employees than domestic firms. Foreign companies, however, do not seem to perform better than domestic companies when considering the promotion of women to top management level. The indicators show very small differences in the shares of companies with women in top management in the OECD area, the Middle East and North Africa, and Southeast Asia, while in the remaining regions the share of domestic companies with women in top management positions is higher. The share of domestic firms with women in ownership is higher in most regions and in the OECD area, with the exception of the Middle East and North Africa and Sub-Sahara Africa, where the differences between the shares of foreign and domestic firms are small.

The results confirm that a broader context is needed to assess the contribution of FDI to gender equality. The impact of foreign firms on gender outcomes is influenced by several factors such as the sector of the investment, the entry mode of the foreign investor (e.g. greenfield FDI or mergers and acquisitions deals), the motive of the FDI (e.g. efficiency seeking, market seeking), as well as the MNE corporate culture, which is in turn influenced by the norms and values prevailing in the country of origin (OECD, 2022[2]). Recent studies find that foreign companies from more gender-equal countries have higher shares of women, including in management levels, lower gender pay gaps and are more likely to offer family-friendly work arrangements (Kodama, Javorcik and Abe, 2018[8]; Tang, 2017[9]). The policy and institutional context of the host country also matter, including its commonly accepted social and cultural norms in relation to gender (OECD, 2022[2]).

The governance framework for gender equality can vary across countries. Especially in developed countries, gender is typically mainstreamed into the activities of all government ministries. In less developed countries, which rely more on private investment, government intervention is often more limited and gender equality initiatives depend largely on dedicated ministries and institutions, including private actors and the donor community. However, the policy and institutional framework can change significantly even between countries with similar levels of development. For example, Canada and Sweden, two countries strongly committed to achieving gender equality, have very different governance frameworks. Both countries have ministries dedicated to gender issues. However, Sweden has very few initiatives to support gender equality and relies on a formal gender mainstreaming programme to raise awareness of gender issues among government agencies. Canada, on the other hand, relies more on targeted gender initiatives at both federal and provincial levels (OECD, 2022[2]).

Co-ordination between actors responsible for gender and investment policies, as well as other relevant policies, are key to improving the impact of FDI. Investment promotion agencies (IPAs) are in a unique position to link investment to gender equality objectives. Only recently some IPAs have started to attach importance to gender equality objectives. For example, Business Sweden has introduced a clear code of conduct and vision for gender equality. Invest in Canada has a gender-focused strategy in outbound investments. Costa Rica’s IPA, CINDE, supports several educational programmes for women in collaboration with universities and some MNEs.

Institutional co-ordination mechanisms between the relevant institutions and agencies also play an important role. These can take different forms, from gender focal points to inter-ministerial and inter-agency committees. In Jordan, for example, gender units are an important tool for mainstreaming gender issues in the activities of ministries, including in investment issues. They are co-ordinated and report directly to the Jordanian National Commission for Women (JNCW), a semi-governmental body that serves as a reference authority for women’s issues (OECD, 2022[10]).

The national legal and regulatory framework influences the ability of FDI to create quality jobs, as well as the capacity of women to take advantage of these opportunities. Regulatory restrictions on FDI (for instance related to foreign ownership, screening and approval procedures, and constraints on foreign staff) can limit the potential employment impact of FDI, particularly when it affects sectors that employ or could employ many women. Regulations on minimum wage, employment protection, social protection, taxation, sexual harassment and flexible working arrangements affect the quality of employment opportunities created by FDI. Burdensome and non-transparent business regulations and discriminatory laws regarding property and inheritance rights can hinder women’s ability to become entrepreneurs and benefit from the business opportunities brought by FDI. Access to quality education and healthcare is also crucial for a productive and well-educated female workforce.

It is important that the national legal and regulatory framework is aligned with international standards on gender equality (e.g. CEDAW, ILO conventions) and promotes the OECD Guidelines for Multinational Enterprises and Due Diligence guidance, which help companies prevent and address the negative impacts of business operations on the economy, society and the environment (OECD, 2011[11]). In addition, the inclusion of gender-related provisions in regional trade agreements and bilateral investment treaties, even if non-binding, can provide a means of signalling a country’s commitment to promoting gender equality (Chapter 30).

A range of policy instruments can help address market failures, such as information asymmetries, which penalise women in the labour market and limit their capacity to benefit from the presence of foreign firms. For example, targeted tax incentives can encourage the recruitment and promotion of women or the adoption of gender-inclusive working practices in both foreign and domestic companies. Jordan, for instance, provides a corporate income tax reduction to companies that hire between 15% and 25% of women in their workforce, depending on the sector. It is important, however, that these measures are designed in a transparent way and regularly assessed.

Training programmes tailored to the needs of foreign investors can help increase the employability of women in foreign companies. Training programmes adapted to the needs of foreign investors can help increase the employability of women in foreign companies. For example, Costa Rica’s CINDE promotes training programmes for women in collaboration with universities and multinationals to increase the participation of women in Science, Technology, Engineering, Arts and Mathematics (STEAM) sectors. Information and facilitation measures can help eliminate prejudices and stereotypes that influence the perceptions of employers and investors. These include public information campaigns and programmes that enable women entrepreneurs to connect with potential business partners and investors, such as supplier diversity programmes and matchmaking events (Box 31.2) (Chapters 28 and 29).

Development co-operation can play an important role in mobilising and enhancing the impact of FDI on gender equality. Development co-operation actors (e.g. state agencies, international organisations, development banks and NGOs) have long worked with developed countries to create sound governance and policy frameworks on investment and support sustainable development, including gender equality (Chapter 2).

Developing countries may struggle to attract FDI due to a combination of investment barriers and real or perceived risks that make it more difficult for the private sector to invest (OECD/UNCDF, 2020[12]). Development co-operation can help lower these barriers, reducing costs, risk and uncertainty for investors. It can do so by improving the investment climate, productive capacity (e.g. economic diversification, integration into regional and global value chains) and infrastructure of beneficiary countries. While fostering the development of the private sector, development co-operation can help countries achieving the SDGs. Over the last decade, official development funding (ODF) for private sector development, which includes FDI-related assistance, has grown steadily. OECD research shows, however, that ODF is rarely linked to gender equality targets, while it more often supports other SDGs such as low-carbon transition, industry, innovation and infrastructure, and job and skill development (Box 31.3) (OECD, 2022[13]).

The FDI Qualities Guide for Development Co-operation (OECD, 2022[13]) provides advice on how to make donor interventions more effective and improve the positive impact of FDI on gender equality as well as on other sustainable development dimensions. It offers a compendium of options for development co-operation partners to mobilise and enhance the sustainable development impact of FDI, including through the implementation of recommendations from the OECD FDI Qualities Policy Toolkit.

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