DOES FOREIGN DIRECT INVESTMENT INFLOWS ENHANCE LABOUR PRODUCTIVITY? AN EMPIRICAL ANALYSIS

Abstract

The empirical analysis presented in this paper underlines the correlation between labour productivity given by the Gross Domestic Product (GDP) per employee, as dependent variable, and inward foreign direct investment (FDI) stock, as independent one. The results showed that there is not a strong positive relationship between the labour productivity and the level of inward FDI stock, as the correlation coefficient’s values were between 0.029, in the case of the inverse model, and 0.4 in the case of the power model. Thus, only 40% of the variation of labour productivity is explained by the level of inward foreign direct investment stock. Given the theories and empirical studies in the field, we concluded that a high volume of inward FDI stock will not necessarily boost the productivity, as the spillover effects depend on more important factors, such as the motivation of foreign investors, the existing conditions in the host country, the field concerned etc. Therefore, countries that aim to maximize the positive effects associated with FDI inflows should adopt proactive measures targeting to attract foreign investment mainly in knowledge and technology-intensive industries.