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The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy

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  • Jaan Masso

  • Urmas Varblane

  • Priit Vahter

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 lowcost 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 homecountry 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.

Suggested Citation

  • Jaan Masso & Urmas Varblane & Priit Vahter, 2007. "The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy," William Davidson Institute Working Papers Series wp873, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2007-873
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    Cited by:

    1. Madalina-Gabriela ANGHEL & Constantin ANGHELACHE & Doina AVRAM & Doina BUREA, 2017. "Foreign Direct Investment As An Accumulated Share Of National Wealth," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 65(10), pages 37-46, October.
    2. John Nkwoma Inekwe, 2013. "FDI, Employment and Economic Growth in Nigeria," African Development Review, African Development Bank, vol. 25(4), pages 421-433.
    3. Jaan Masso & Kerly Krillo, 2010. "Estonia, Latvia and Lithuania: Minimum Wages in a Context of Migration and Labour Shortages," Chapters, in: Daniel Vaughan-Whitehead (ed.), The Minimum Wage Revisited in the Enlarged EU, chapter 4, Edward Elgar Publishing.
    4. Manmohan Agarwal & Pragya Atri & Srikanta Kundu, 2017. "Foreign Direct Investment and Poverty Reduction," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(2), pages 135-157, September.
    5. Rasmus Bøgh Holmen & Nicolas Gavoille & Jaan Masso & Arūnas Burinskas, 2023. "Internationalization in the Baltic Regional Accounts: A NUTS 3 Region Dataset," Data, MDPI, vol. 8(12), pages 1-32, November.
    6. Clark Don P. & Highfill Jannett & de Oliveira Campino Jonas & Rehman Scheherazade S., 2011. "FDI, Technology Spillovers, Growth, and Income Inequality: A Selective Survey," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-44, July.
    7. Jaan Masso & Tõnu Roolaht & Urmas Varblane, 2010. "Foreign Direct Investment And Innovation In Central And Eastern Europe: Evidence From Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 67, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    8. Constantin ANGHELACHE & Ihab Jweida SJ JWEIDA & Marius POPOVICI & Emilia STANCIU, 2016. "Analysis of the correlation between direct foreign investments and export," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(10), pages 78-84, October.
    9. Iuga Iulia, 2016. "The Management Of Foreign Direct Investment And Influence On Total Employment Rate And Labour Productivity," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 13(1), pages 81-89, June.
    10. Damijan, Jože & Kostevc, Crt & Rojec, Matija, 2014. "Outward FDI and company performance in CEECs," Working Paper Series in Economics and Institutions of Innovation 381, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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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