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Wage Spillovers from Foreign Direct Investment in Kenya’s Manufacturing Sector

Author

Listed:
  • Wycliff Mariga Ombuki
  • Bethuel Kinyanjui Kinuthia
  • Daniel Okado Abala

Abstract

The objective of this paper is to investigate the effect of foreign direct investment on average wages paid by domestic manufacturing firms in Kenya. Specifically, the paper aims at identifying the transmission channels through which wage spillovers from foreign direct investment occur as well as the impact of technology gap and firm size on the behaviour of the spillover transmission channels. Employing panel data obtained from the World Bank Enterprise Surveys covering the period 2007–2018 and using fixed effects and Two-Step System GMM, we analyzed both horizontal and vertical spillover channels for wage spillovers. Findings from estimations based on all domestic firms indicated that there were no significant wage spillovers from FDI. However, when the technology gap was considered, domestic firms with low technology gaps with foreign-owned firms showed statistically significant positive wage spillovers via backward linkage, demonstration effects, and labour mobility channels and statistically significant negative spillovers via the competition effects channel. Finally, the results showed that firm size had no impact on the behaviour of various wage spillover transmission channels examined.

Suggested Citation

  • Wycliff Mariga Ombuki & Bethuel Kinyanjui Kinuthia & Daniel Okado Abala, 2023. "Wage Spillovers from Foreign Direct Investment in Kenya’s Manufacturing Sector," Journal of Sustainable Development, Canadian Center of Science and Education, vol. 16(5), pages 107-107, September.
    • Handle: RePEc:ibn:jsd123:v:16:y:2023:i:5:p:107
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    References listed on IDEAS

    as
    1. Bethuel Kinyanjui Kinuthia, 2017. "Export Spillovers: Comparative Evidence From Kenya and Malaysia," Journal of African Economies, Centre for the Study of African Economies, vol. 26(1), pages 24-51.
    2. Robert Lipsey & Fredrik Sjöholm, 2004. "FDI and wage spillovers in Indonesian manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(2), pages 321-332, June.
    3. Rosanna Pittiglio & Filippo Reganati & Edgardo Sica, 2015. "Do Multinational Enterprises Push up the Wages of Domestic Firms in the Italian Manufacturing Sector?," Manchester School, University of Manchester, vol. 83(3), pages 346-378, June.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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