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Physical Capital, Skill Intensity and Ownership Structure in Foreign Direct Investment Projects in Sub-Saharan Africa

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  • J. Paul Dunne

    (School of Economics, University of Cape Town)

  • Santigie Mohamed Kargbo

    (West African Monetary Institute (WAMI), Ghana)

Abstract

While the intra-firm trade literature finds that capital-intensive foreign direct investment (FDI) is more likely to occur through joint ventures with local companies when targeted at capital-intensive industries, there is scant evidence on what happens in developing countries. This paper investigates FDI in sub-Saharan Africa, using a large firm-level dataset of manufacturing and services sectors for 19 countries in the region in 2010. It finds strong evidence that domestic firms are indeed more likely to be integrated in FDI projects in capital-intensive rather than labour-intensive sectors. This means that the composition of FDI matters for developing countries, as more capital-intensive FDI is more likely to result in joint ventures and this should facilitate knowledge and technology spillovers to the local agents. In addition, it implies that support is needed to develop skills in local firms in capital-intensive sectors to encourage foreign firms to engage in joint ventures with them, rather than set up wholly owned subsidiaries and outsource.

Suggested Citation

  • J. Paul Dunne & Santigie Mohamed Kargbo, 2019. "Physical Capital, Skill Intensity and Ownership Structure in Foreign Direct Investment Projects in Sub-Saharan Africa," School of Economics Macroeconomic Discussion Paper Series 2019-03, School of Economics, University of Cape Town.
  • Handle: RePEc:ctn:dpaper:2019-03
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