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The Impact Of Outward Fdi On Home-Country Employment In A Low-Cost Transition Economy

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Author Info
Jaan Masso
Urmas Varblane
Priit Vahter

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Abstract

The current extensive literature on the home-country employment effect of FDI focuses almost exclusively on the case of investments from high-income and high labour cost home countries. In our paper we analyse the home-country employment effect in Estonia as a low- cost medium-income transition economy. The data from the population of Estonian firms between 1995 and 2002 was studied with regression analysis and propensity score matching in order to construct an appropriate counterfactual for the firms that have invested abroad. The results indicate that in general, outward FDI had a positive impact on the home-country employment growth. Concerning direct investors (domestic firms investing abroad) and indirect investors (foreign-owned firms investing abroad), the former group had a stronger home- country employment effect due to their smaller pre-investment size and because the subsidiaries of indirect investors are served from other locations rather than from Estonia. The positive employment effect was much stronger in the case of investments made after 1999 due to the better macro-economic performance of Estonia from the year 2000 onwards. Services firms demonstrated a stronger home-country employment effect than manufacturing firms. Our results imply that the logic of the outward investments from low-cost transition and developing economies differs from that of high-income countries.

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Paper provided by Faculty of Economics and Business Administration, University of Tartu (Estonia) in its series University of Tartu - Faculty of Economics and Business Administration Working Paper Series with number 52.

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Length: 67 pages
Date of creation: 2007
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Handle: RePEc:mtk:febawb:52

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Related research
Keywords: outward foreign direct investments; employment effects of FDI; Central- and Eastern Europe; transition;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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