Labour Productivity Spillovers from Foreign Direct Investment: Evidence from Malaysian Industry Level Panel Data by Labour Skills Composition
This study adds to the literature by examining both technology and knowledge spillover effects of foreign direct investment (FDI) according to skill composition and also by country spillovers in Malaysian medium-high industry, which raises the question of the real benefits produced by both spillovers that Malaysia can reap from the presence of FDI in enhancing the labour productivity. Using the seemingly unrelated regression (SUR) estimator to estimate labour productivity function by skill composition, the results reported that the presence of Japanese, Singaporean and the United States MNCs are statistically significant in influencing the productivity of high and medium-skilled workers from both technology and knowledge spillover effects during the period of 2000 to 2018. Conversely, the analysis indicated that both Chinese and Taiwanese MNCs significantly increase the low-skilled labour productivity. An interesting finding was discovered, that the negative association between knowledge spillovers and labour productivity across the skills draws the attention for the role of local firms as recipients of FDIs depends not only on their absorptive capacity but also on their strategic decisions regarding search direction and motivational disposition to absorb external knowledge. These issues need to be investigated further to understand how local firms may increase their chances of benefitting from MNC presence.
Aitken, B. J., & Harrison, A. E. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89(3), 605–618.
Allison, P. (2009). Fixed effects regression models. In Fixed Effects Regression Models. SAGE Publications, Inc. https://doi.org/10.4135/9781412993869
Araújo, B. C., Bogliacino, F., & Vivarelli, M. (2009). The role of skill enhancing trade in Brazil: Some evidence from micro data. Economic Research Papers, 97(10), 1– 22.
Benhabib, J., & Spiegel, M. M. (1994). The role of human capital in economic development evidence from aggregate cross-country data. Journal of Monetary economics, 34(2), 143- 173.
Blomström, M., & Persson, H. (1983). Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from the Mexican manufacturing industry. World Development. https://doi.org/10.1016/0305-750X(83)90016-5
Blomström, M., & Wolff, E. N. (1994). Multinational corporations and productivity convergence in Mexico. Convergence of productivity: Cross-national studies and historical evidence, 263-84.
Blonigen, B. A., & Slaughter, M. J. (2001). Foreign-affiliate activity and US skill upgrading. Review of Economics and Statistics, 83(2), 362-376. Available at: https://doi.org/10.1162/00346530151143888
Buckley, P. J., Clegg, J., & Wang, C. (2002). The Impact of Inward FDI on the Performance of Chinese Manufacturing Firms. Journal of International Business Studies, 33(4), 637–655. https://doi.org/10.1057/palgrave.jibs.8491037
Bwalya, S. M. (2006). Foreign direct investment and technology spillovers: Evidence from panel data analysis of manufacturing firms in Zambia. Journal of Development Economics, 81(2), 514-526. Available at: https://doi.org/10.1016/j.jdeveco.2005.06.011.
Cohen, W. M., & Klepper, S. (1996). A reprise of size and R & D. The Economic Journal, 106(437), 925-951.
Cohen, W. M., & Levinthal, D. A. (1989). Innovation and learning: the two faces of R & D. The Economic Journal, 99(397), 569-596.
Djulius, H. (2017). Foreign Direct Investment and Technology Transfer: Knowledge Spillover in the Manufacturing Sector in Indonesia. Global Business Review. https://doi.org/10.1177/0972150916666878
Domar, E. D. (1946). Capital expansion, rate of growth, and employment. Econometrica, Journal of the Econometric Society, 137-147.
Driffield, N., Love, J. H., & Taylor, K. (2009). Productivity and labour demand effects of inward and outward foreign direct investment on uk industry. The Manchester School, 77(2), 171–203. https://doi.org/10.1111/j.1467-9957.2008.02093.x
Elia, S., Mariotti, I., & Piscitello, L. (2009). The impact of outward FDI on the home country's labour demand and skill composition. International Business Review, 18(4), 357-372.
Feinberg, S. E., & Majumdar, S. K. (2001). Technology spillovers from foreign direct investment in the Indian pharmaceutical industry. Journal of International Business Studies, 32(3), 421-437.
Figini, P., & Görg, H. (1999). Multinational companies and wage inequality in the host country: The case of Ireland. Weltwirtschaftliches Archiv, 135(4), 594–612. Available at: https://doi.org/10.1007/BF02707386.
Findlay, R. (1978). Relative backwardness, direct foreign investment, and the transfer of technology: a simple dynamic model. The Quarterly Journal of Economics, 92(1), 1-16.
Frankel, M. (1962). The production function in allocation and growth: a synthesis. The American Economic Review, 996-1022.
Frankel, J. A., & Romer, D. H. (1999). Does trade cause growth? American Economic Review, 89(3), 379-399.
Hair, Joseph, F., Rolph, E. A., Ronald, L. T., & William, C. B. (1995). Multivariate data analysis. London: Prentice Hall.
Haskel, J. E., Pereira, S. C., & Slaughter, M. J. (2007). Does inward foreign direct investment boost the productivity of domestic firms? The Review of Economics and Statistics, 89(3), 482-496.
Girma, S., & Görg, H. (2005). Foreign Direct Investment, Spillovers and Absorptive Capacity: Evidence from Quantile Regressions. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.410742
Girma, S., Greenaway, D., & Wakelin, K. (2001). Who Benefits from Foreign Direct Investment in the UK? Scottish Journal of Political Economy, 48(2), 119–133. http://dx.doi.org/10.1111/1467-9485.00189
Gujarati, D. N., Porter, D. C., & Gunasekar, S. (2012). Basic Econometrics. Tata McGraw-Hill Education.
Haddad, M., & Harrison, A. (1993). Are there positive spillovers from direct foreign investment? Journal of Development Economics, 42(1), 51–74. https://doi.org/10.1016/0304-3878(93)90072-U
Harrod, R. F. (1939). An essay in dynamic theory. The Economic Journal, 49(193), 14-33.
Jude, C. (2016). Technology spillovers from FDI. Evidence on the intensity of different spillover channels. The World Economy, 39(12), 1947–1973. https://doi.org/10.1111/twec.12335
Keller, W., & Yeaple, S. R. (2003). Multinational enterprises, international trade, and productivity growth: firm-level evidence from the United States. The Review of Economics and Statistics, 9(4), 821–831.
Konings, J. (2001). The effects of foreign direct investment on domestic firms: Evidence from firm‐level panel data in emerging economies. Economics of Transition, 9(3), 619-633.
Kosova, R. (2010). Do foreign firms crowd out domestic firms? Evidence from the Czech Republic. The Review of Economics and Statistics, 92(4), 861-881.
Le, N. H., Duy, L. V. Q., & Ngoc, B. H. (2019). Effects of foreign direct investment and human capital on labour productivity: Evidence from Vietnam. The Journal of Asian Finance, Economics, and Business, 6(3), 123-130.
Liu, W. S., Agbola, F. W., & Dzator, J. A. (2016). The impact of FDI spillover effects on total factor productivity in the Chinese electronic industry: a panel data analysis. Journal of the Asia Pacific Economy, 21(2), 217–234. https://doi.org/10.1080/13547860.2015.1137473
Liu, X., Parker, D., Vaidya, K., & Wei, Y. (2001). The impact of foreign direct investment on labour productivity in the Chinese electronics industry. International Business Review, 10(4), 421–439. https://doi.org/10.1016/S0969-5931(01)00024-5
Masron, T. A., & Hassan, M. K. H. (2016). US foreign direct investment (FDI) and manufacturing sector in Malaysia. Asian Academy of Management Journal, 21(1), 89.
Mebratie, A. D., & Bedi, A. S. (2013). Foreign direct investment, black economic empowerment and labour productivity in South Africa. The Journal of International Trade & Economic Development, 22(1), 103–128. https://doi.org/10.1080/09638199.2013.745287
Meyer, K. E., & Sinani, E. (2009). When and where does foreign direct investment generate positive spillovers? A meta-analysis. Journal of International Business Studies, 40(7), 1075-1094.
MIDA (2019). MIDA annual report: Investment performance 2019. Malaysia: Malaysia Investment Development Authority, Kuala Lumpur.
Munteanu, A.-C. (2015). Knowledge spillovers of FDI. Procedia Economics and Finance, 32, 1093–1099. https://doi.org/10.1016/S2212-5671(15)01573-7
Noor, A. H. M. (2000). Technological effort in developing countries: Multinational corporations in Malaysia. Jurnal Ekonomi Malaysia, 34, 39-58.
OECD. (2011). Review of innovation in Southeast Asia: Country profile of innovation in Malaysia. Malaysia: Organisation for Economic Co-operation and Development.
Perri, A., & Peruffo, E. (2016). Knowledge Spillovers from FDI: A Critical Review from the International Business Perspective. International Journal of Management Reviews, 18(1), 3–27. https://doi.org/10.1111/ijmr.12054
Ramstetter, E. D. (2014). Wage Differentials between Foreign Multinationals and Local Plants and Worker Quality in Malaysian Manufacturing. Asian Development Review, 31(2), 55–76.
Sasidharan, S., & Kathuria, V. (2011). Foreign direct investment and R&D: Substitutes or complements—A case of Indian manufacturing after 1991 reforms. World Development, 39(7), 1226-1239.
Wang, Y., & Mu, B. (2012). How technology spillovers from developed to developing countries influence labor productivity in developing countries.
Yudaeva, K., Kozlov, K., Melentieva, N., & Ponomareva, N. (2003). Does foreign ownership matter? The Russian experience. Economics of transition, 11(3), 383-409.
Yunus, N. M. (2020). Determinants of Foreign Direct Investment: An Analysis on Policy Variables in the Malaysian Manufacturing Industry. International Journal of Asian Social Science, 10(12), 746–760. https://doi.org/10.18488/journal.1.2020.1012.746.760
Yunus, N. M., & Hamid, F. S. (2019). Training, research and development, and spillover effects of foreign direct investment: A study on labour productivity in malaysian manufacturing industry. International Journal of Supply Chain Management, 8(3), 966–972.
Yunus, N. M., & Masron, T. A. (2020). Spillover effects of inward foreign direct investment on labour productivity: An analysis on skill composition in manufacturing industry. International Journal of Asian Social Science, 10(10), 593–611. https://doi.org/10.18488/journal.1.2020.1010.593.611
Yunus, N. M., Said, R., & Azman-Saini, W. N. W. (2015). Spillover effects of FDI and trade on demand for skilled labour in Malaysian manufacturing industries. Asian Academy of Management Journal, 20(2), 1–27.
Yunus, N. M., Said, R., & Siong Hook, L. (2014). Do cost of training, education level and R&D investment matter towards influencing labour productivity? Jurnal Ekonomi Malaysia, 48(1), 133–142.
Yunus, N.M, Wahob, N.A. (2021). The technology and knowledge spillover effects of FDI on labour productivity. GATR Journal of Business and Economics Review, 5 (4), 51-58.
Zellner, A. (1962). An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association, 57, 348-368.
Zellner, A. (1963). Estimators for seemingly unrelated regression equations: Some exact finite sample results. Journal of the American Statistical Association, 58(304), 977-992.
Zhang, L. (2017). The knowledge spillover effects of FDI on the productivity and efficiency of research activities in China. China Economic Review, 42, 1–14. https://doi.org/10.1016/j.chieco.2016.11.001