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Foreign Direct Investment and Structural Transformation in Africa

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  • Hoekman, Bernard
  • Sanfilippo, Marco
  • Tambussi, Margherita

Abstract

This paper analyzes the relationship between inward FDI and structural transformation of local labour markets in Africa. We combine geolocalized information on the distribution of FDI with a novel database that provides information from 40,665,627 individuals in 2,570 subnational units over the period 1987-2019. Results are suggestive of a positive effect of FDI on structural transformation. FDI contributes to an increase in employment, and shifts of workers towards modern industries and higher-skilled occupations. No effects are found on self-employment. Results are heterogeneous, reflecting the characteristics of the foreign investor and of the business activity undertaken by foreign firms in the local market. Geospatial analysis of changes in performance of domestic firms exposed to nearby FDI projects provides evidence of horizontal spillovers and inter-industry linkages, suggesting a complementary mechanism through which FDI drives structural change.

Suggested Citation

  • Hoekman, Bernard & Sanfilippo, Marco & Tambussi, Margherita, 2023. "Foreign Direct Investment and Structural Transformation in Africa," CEPR Discussion Papers 17838, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17838
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    2. Owusu, Solomon & Tang, Keyi & Ndubuisi, Gideon, 2025. "Chinese ties and low carbon industrialization in Africa," Energy Economics, Elsevier, vol. 144(C).
    3. Mariapia Mendola & Giovanni Prarolo & Tommaso Sonno, 2025. "Curse or blessing? multinational corporations and labor market outcomes in Africa," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 161(1), pages 339-371, February.
    4. Tafese, Tevin & Lay, Jann & Tran, Van, 2025. "From fields to factories: Special economic zones, foreign direct investment, and labour markets in Vietnam," Journal of Development Economics, Elsevier, vol. 174(C).

    More about this item

    Keywords

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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania

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