FDI spillovers and female employment: A developing country perspective

Inward foreign direct investment (FDI) has played a crucial role in local labour markets, contributing to poverty alleviation and economic development across many host countries. While the evidence of higher female representation within foreign firms is well documented, examining spillover effects of FDI on domestic firms’ female employment remains largely under-explored. This study attempts to fill the gap both theoretically and empirically. Our theoretical model shows that FDI presence simultaneously exerts two contrasting forces on domestic firms’ expected female employment, namely a direct spillover effect and an indirect cut-off effect. We then specify and estimate an empirical model, using a rich firm-level panel dataset of a fast-growing service industry in Vietnam. The data suggest that on average, foreign firms are twice more female-intensive and the estimation results reveal strong evidence of positive spillovers from FDI. The effect is profound among privately owned firms, while being insignificant among state-owned counterparts. Our findings carry major implications to local workforce, firms and policymakers concerning the labour market effects of inward FDI.