1.2. Employment Effects
The effects on employment associated with FDI are both direct and indirect. In countries where capital is relatively scarce but labour is abundant, the creation of employment opportunities – either directly or indirectly – has been one of the most prominent impacts of FDI. The direct effect arises when a foreign MNE employs a number of host country citizens. Whereas, the indirect effect arises when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE. In order to illustrate the employment effects in host country we will use the example of Toyota’s investment in France. Based on a data published (Hill, 2000) this investment created 2000 direct jobs and conceivably another 2000 jobs in supporting industries.
The domestic private sector can benefit by entering into business relationships supplying inputs to these new market entrants (backward linkages) or processing a foreign investor’s products (forward linkages). By promoting both forward and backward production connection with domestic industries and other sectors, for instance through subcontracting systems between a foreign firm and local subcontractors who supply spare parts, components or semi-finished goods to the foreign firm, extra jobs are created ultimately and further economic activity encouraged.
The employment effects of FDI are of considerable interest to host developing countries: in many of them, a key requirement for sustainable growth is the ability to absorb the human resource released from agriculture into manufacturing and service industries. The quantitative effects of FDI on employment globally have been found to be modest, but somewhat larger in host developing than host developed countries, and especially so in the manufacturing sector (World Investment Report, 1999).
According to Nzomo (1971), a study done in Kenya showed that FDI made a modest contribution with regard to the total employment creation since direct employment creation was small while no evidence on its indirect employment creation. This may suggest that foreign firms operated in that country have no production linkages with local firms. On the other hand, Aaron (1999) states that FDI was likely directly responsible for 26 million jobs in developing countries worldwide. In addition, for every single direct job created by FDI it was estimated that approximately 1.6 additional jobs were indirectly created through production linkages between FDI and local sectors.
1.2. Employment EffectsThe effects on employment associated with FDI are both direct and indirect. In countries where capital is relatively scarce but labour is abundant, the creation of employment opportunities – either directly or indirectly – has been one of the most prominent impacts of FDI. The direct effect arises when a foreign MNE employs a number of host country citizens. Whereas, the indirect effect arises when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE. In order to illustrate the employment effects in host country we will use the example of Toyota’s investment in France. Based on a data published (Hill, 2000) this investment created 2000 direct jobs and conceivably another 2000 jobs in supporting industries.The domestic private sector can benefit by entering into business relationships supplying inputs to these new market entrants (backward linkages) or processing a foreign investor’s products (forward linkages). By promoting both forward and backward production connection with domestic industries and other sectors, for instance through subcontracting systems between a foreign firm and local subcontractors who supply spare parts, components or semi-finished goods to the foreign firm, extra jobs are created ultimately and further economic activity encouraged.The employment effects of FDI are of considerable interest to host developing countries: in many of them, a key requirement for sustainable growth is the ability to absorb the human resource released from agriculture into manufacturing and service industries. The quantitative effects of FDI on employment globally have been found to be modest, but somewhat larger in host developing than host developed countries, and especially so in the manufacturing sector (World Investment Report, 1999).According to Nzomo (1971), a study done in Kenya showed that FDI made a modest contribution with regard to the total employment creation since direct employment creation was small while no evidence on its indirect employment creation. This may suggest that foreign firms operated in that country have no production linkages with local firms. On the other hand, Aaron (1999) states that FDI was likely directly responsible for 26 million jobs in developing countries worldwide. In addition, for every single direct job created by FDI it was estimated that approximately 1.6 additional jobs were indirectly created through production linkages between FDI and local sectors.
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