The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals The impacts of foreign direct nvestment on sustainable development goals
THEORETICAL FRAMEWORK AND PRACTICAL BASIS
Overview of foreign direct investment
1.1.1 Definition of foreign direct investment
Despite its late emergence in comparison to other external economic activities, FDI has rapidly gained a significant foothold in the realm of international relations
As a phenomenon increasingly embedded within the course of history, it has become an essential imperative for every nation across the globe
Foreign Direct Investment (FDI), as defined by the IMF in 1993, refers to investment activities aimed at acquiring lasting interests in enterprises located outside the investor's home country The primary objective of FDI is to secure actual management rights within the foreign enterprise.
According to the OECD (1996), Foreign Direct Investment (FDI) fosters long-lasting economic relationships with enterprises by utilizing four key mechanisms: establishing or expanding a fully managed subsidiary, acquiring an existing enterprise, entering a new business, and providing long-term credit that exceeds five years.
Foreign Direct Investment (FDI) is a long-term investment strategy aimed at generating sustainable benefits for the direct investor through enterprises in foreign economies, as highlighted by UNCTAD (2022) This relationship, characterized by "lasting interest," indicates a deep connection and significant influence over the management of the investment enterprise Direct investment includes not only the initial establishment of this connection but also all subsequent capital transactions between the investor and the enterprise, including those with affiliated entities It is essential to accurately document all capital transactions and share exchanges within related entities in the Balance of Payments and the International Investment Position (IIP) statements Direct investors seek to maintain substantial control over the management of businesses in the host economy, although the definition of investment itself remains somewhat ambiguous.
According to the World Trade Organization (WTO), Foreign Direct Investment (FDI) involves an investor from a home country acquiring and managing an asset in a host country This definition emphasizes FDI as an asset, distinguishing it from other financial instruments due to its regulatory aspects.
In this case, the investor is often referred to as the “parent firm” and the assets are referred to as the “affiliate” or “subsidiary”
Foreign Direct Investment (FDI) is defined by major organizations like the IMF and UNCTAD as a significant capital investment from one country into a project in another, emphasizing the importance of balancing payments This investment not only involves financial contributions but also aims to achieve or participate in the management of the project, highlighting the intricate interplay between investors, time, and roles in FDI activities.
1.1.2 Main features of foreign direct investment
Foreign Direct Investment (FDI) involves a partnership between investors and the host country receiving the investment, where investors must adhere to specific rights and obligations related to their investment This collaboration requires clear definitions of ownership and management rights Additionally, the host country benefits from the transfer of technology and techniques, which is crucial for the market penetration strategies of multinational corporations and organizations.
Foreign Direct Investment (FDI) goes beyond simple capital investment, as it includes the transfer of management, technology, and equipment A key feature of FDI is its ability to provide significant administrative control or influence over foreign enterprises FDI flows involve capital transfers from foreign investors or their affiliates to recipient enterprises, as well as capital received by investors from investing enterprises The main components of FDI are equity capital, reinvested earnings, and intra-company loans.
Equity capital involves foreign direct investors acquiring shares from enterprises in a country other than their own Reinvested earnings refer to the portion of profits from affiliates that are retained and not distributed as dividends to the direct investor, based on their equity stake in those affiliates These affiliates utilize their retained earnings for reinvestment Additionally, intra-company loans, which are financial transactions between parent companies and their affiliates, can be structured as either short-term or long-term debt arrangements.
Several notable characteristics of FDI can be deduced as follows:
1.1.2.1 FDI is a manifestation of economic feasibility and unsurpassed economic effectiveness, whereby the primary aim is to augment returns for investors
Foreign Direct Investment (FDI) is primarily classified as private investment, although some countries, like Vietnam, may allow state-owned capital involvement in exceptional cases Regardless of ownership, the main goal of FDI is profit maximization Developing nations aiming to attract foreign investments should focus on this aspect, particularly from investor-friendly countries To effectively draw FDI, these nations must establish strong legal frameworks and policies that align with their socio-economic development goals, ensuring that FDI benefits national interests rather than merely serving the profit motives of investors.
1.1.2.2 The requisite allocation of capital from foreign investors varies depending on the laws and regulations of individual nations
Contributions are essential for establishing charter or legal capital, defining the rights and obligations of all parties involved Consequently, the specified ratio directly impacts both the returns and risks for investors.
Foreign investors seeking control or participation in investment enterprises must adhere to specific capital requirements dictated by national laws, which vary significantly across countries In the US, a minimum contribution of 10% is required, while France and the UK mandate a 20% stake Vietnam's Investment Law of 2014 classifies both direct and indirect investments as business investments, allowing foreign investors to hold 10% of total common shares or voting rights, thus enabling active management involvement The distribution of profits, risks, and the rights and responsibilities of investors are directly linked to their respective capital contributions.
1.1.2.3 Investors are endowed with the prerogative to make autonomous investment determinations, supervise their individual production and commercial operations, and assume liability for their private gains and losses
Investors have the autonomy to choose their domain and allocate resources effectively, resulting in a practical and cost-efficient approach free from political constraints Their financial returns are linked to the performance of the businesses they invest in, classified as business income rather than interest Additionally, foreign direct investment (FDI) is expected to bring advanced technology and methodologies to recipient countries, enhancing project implementation and overall efficiency.
1.1.2.4 Investment recipient countries need to have a clear legal framework and policies to attract FDI to promote economic development
Enhancing strategies to attract and streamline foreign direct investment is crucial This involves strengthening investment promotion capabilities and developing competitive propositions for priority sectors Additionally, countries are reconfiguring their investment entry systems to ensure fair treatment of investors, reduce sectoral barriers, and simplify processes, all aimed at achieving developmental goals.
1.1.2.5 The key to FDI is the element of control
Control refers to the intention to actively manage and influence the operations of a foreign firm, with various interpretations depending on the specific aspects being examined.
1.1.3 Classification of foreign direct investment
Foreign Direct Investment (FDI) activities can be categorized based on various criteria, including the mode of entry, the orientation of both the host country and the investor, and the establishment of productive assets by foreign entities.
1.1.3.1 By the mode of entry, FDI is classified into three types, which are New investment, Acquisitions and Merger
Overview of sustainable development goals
1.2.1 Sustainable development goals: History and implementation process
In 2015, UN Member States adopted the 2030 Agenda for Sustainable Development, a framework aimed at achieving global peace and prosperity for humanity and the environment Central to this initiative are seventeen Sustainable Development Goals (SDGs) that require immediate and collaborative action from all nations, regardless of their socio-economic status, to foster a sustainable future The agenda emphasizes that eradicating poverty and related challenges demands effective measures to improve healthcare and education, reduce inequalities, and promote economic growth, all while tackling climate change and preserving vital ecosystems like oceans and forests.
SDGs are founded upon a protracted period of effort by nations and the United Nations, consisting of the Department of Economic and Social Affairs (DESA)
In June 1992, the Earth Summit in Rio de Janeiro saw 178 countries agree to Agenda 21, a comprehensive action plan aimed at fostering sustainable development, improving quality of life, and protecting the environment.
In September 2000, the United Nations Headquarters in New York hosted the Millennium Summit, where Member States unanimously adopted the Millennium Declaration This pivotal event led to the establishment of eight key objectives, known as the Millennium Development Goals (MDGs), designed to alleviate extreme poverty and its associated impacts by the target year.
The 2002 World Summit on Sustainable Development in South Africa resulted in the Johannesburg Declaration and the Plan of Implementation, highlighting the global commitment to poverty eradication and environmental protection This pivotal agreement reinforced Agenda 21 and the Millennium Declaration, emphasizing the importance of multilateral partnerships for sustainable development.
The outcomes of the United Nations Conference on Sustainable Development (Rio +20) summit included new initiatives aimed at advancing sustainable development, with a focus on development financing, support for small island developing states, and other pertinent areas.
In 2013, the General Assembly established a thirty-member Open Working Group with the purpose of formulating a proposal pertaining to the SDGs
The year 2015 was pivotal for multilateralism and international policy formation, highlighted by the ratification of key agreements such as the Sendai Framework for Disaster Risk Reduction, the Addis Ababa Action Agenda on Financing for Development, and the 2030 Agenda for Sustainable Development.
(encompasses 17 SDGs), Paris Agreement, High-level Political Forum on Sustainable Development
The Sustainable Development Goals (SDGs) encompass six key themes: dignity, people, planet, partnerships, justice, and prosperity Unlike the Millennium Development Goals (MDGs), the SDGs are more comprehensive, featuring 17 goals supported by 169 specific targets and 232 indicators These goals address a wide range of issues, including climate change, economic inequality, innovation, sustainable consumption, peace, and equity Importantly, each goal is interconnected, meaning that progress in one area can lead to solutions in others.
The SDGs are divided into four general categories that tackle: economic (goals
8, 9, 10, and 12), social (goals 1, 3, 4, 5, 11, and 16), environmental (goals 2, 6, 7, 13,
14, and 15, and governance (goal 17) challenges
The Sustainable Development Goals (SDGs) are more comprehensive and inclusive than the Millennium Development Goals (MDGs), as they address countries across all income levels—high, middle, and low Unlike the MDGs, which broadly aimed at "ensuring environmental sustainability," the SDGs provide more detailed and precise targets, including specific initiatives to combat climate change and promote the sustainable use of oceans, seas, and marine resources.
The Sustainable Development Goals (SDGs) set higher standards than the Millennium Development Goals (MDGs), aiming to eradicate all forms of poverty globally, rather than just extreme poverty and hunger While the MDGs prioritized increasing school enrollment, the SDGs focus on improving the quality of education Additionally, the SDGs place a stronger emphasis on collaborative efforts among all parties, shifting from the MDGs' focus on aid from developed nations to a shared responsibility and initiative from everyone involved.
The 17th Sustainable Development Goal (SDG) emphasizes the importance of acquiring reliable and timely data, a concept absent in the Millennium Development Goals (MDGs) Unlike the MDGs, the SDGs encourage individuals in impoverished areas of developing countries to not only endure their situations but also to live with dignity The primary aim of the SDGs is to promote economic growth and poverty alleviation while safeguarding the natural environment Adhering to the principles of sustainable development is essential for achieving these goals.
Following the adoption of the Sustainable Development Goals (SDGs), initial trends showed promising progress, including declines in acute poverty and child mortality rates, as well as advancements in combating diseases like HIV and hepatitis Gender equality targets have yielded positive results, and there has been an increase in electricity access in impoverished nations alongside a rise in renewable energy adoption Globally, unemployment levels have returned to pre-2008 financial crisis figures, and the area of marine protected zones has more than doubled However, much of this progress remains fragile, with slow advancements overall, further exacerbated by the COVID-19 pandemic, the Ukraine conflict, and climate-related disasters.
As the world reach the halfway mark towards the year 2030, it is evident that the SDGs are facing significant challenges An initial evaluation of the approximately
Out of 140 targets with associated data, only 12% are on track to meet their goals Nearly half show some progress, though the extent varies, while around 30% have either stagnated or fallen below the baseline established in 2015.
By 2030, an estimated 575 million people are projected to remain in acute poverty, with only about one-third of countries likely to meet their poverty reduction targets Additionally, global hunger levels have reverted to 2005 figures, and food prices continue to rise in many nations compared to 2015-2019 Current trends indicate that eliminating gender disparities in legal protections could take 286 years, while around 84 million children risk losing their right to education due to inadequate funding and poor educational outcomes Furthermore, approximately 300 million children and young adults may struggle to achieve basic literacy skills.
The ongoing conflict with the natural world highlights the short-sightedness of our current economic and political systems The urgent need to limit global temperature rise to 1.5 degrees is critical to prevent severe consequences of the climate emergency, while also ensuring fairness for those impacted by climate change Carbon dioxide levels have surged to an all-time high, a phenomenon not seen in the last two million years.
By 2030, renewable energy sources are expected to remain a minor part of our energy mix, with an estimated 660 million people still lacking electricity access and nearly 2 billion relying on polluting fuels for cooking The crucial role of nature in supporting human health and well-being cannot be overstated, yet halting deforestation may take another 25 years, putting many species at risk of extinction.
1.2.2 Global indicator framework for the Sustainable Development Goals
THE IMPACTS OF FOREIGN DIRECT INVESTMENT ON
Introduction about OECD countries
The OECD is an inter-governmental organization comprising 38 member countries, representing some of the world's most developed market economies It serves as a platform for these governments, along with 70 non-member countries, to compare policy experiences, address shared challenges, and identify best practices Established as a successor to the Organization for European Economic Cooperation (OEEC), the OECD facilitates collaboration in coordinating both national and international policies.
Sixteen European countries are collaborating to rejuvenate their economies and oversee the distribution of aid The OECD, founded on December 14, 1960, by 18 European nations along with the US and Canada, is headquartered at the Chateau de la Muette in Paris, France.
The OECD comprises 34 member countries, including 27 from Europe (such as France, Germany, and Italy), 5 from the Americas (Canada, Mexico, and the USA), 3 from Asia (Israel, Japan, and Korea), and 2 from Oceania (Australia and New Zealand).
The OECD aims to support its member countries in formulating national and international development strategies by generating ideas, evaluating policies, and providing data It focuses on four key themes: innovative and sustainable growth sources, efficient resource allocation for development, governance strategies that promote societal advancement, and assessing progress towards development goals.
2.2 Fact of foreign direct investment and sustainable development goals in OECD countries
2.2.1 Overview of OECD Foreign Direct Investment
Foreign Direct Investment (FDI) inflows in the OECD decreased by 26%, totaling USD 496 billion, primarily due to a sharp drop in investments in Luxembourg This decline was partially offset by increases in Switzerland, following significant divestments in 2021, and in the UK, which had faced considerable negative inflows the previous year Additionally, FDI from foreign sources in other OECD countries, excluding Luxembourg, Switzerland, and the UK, saw a 2% decrease.
In 2022, Foreign Direct Investment (FDI) flows into the United States decreased by 21%, whereas countries such as Australia, Italy, and Sweden experienced growth, likely due to a composition effect Italy's increase was largely driven by changes in inner-company debt, while Australia and Sweden saw significant equity inflows Overall, the EU27 nations collectively recorded a 22% rise in FDI, excluding Luxembourg.
Figure 2.1 FDI inflows to selected areas, 2005-22 (USD billion)
Source: OECD International Direct Investment Statistics database
In 2023, G20 economies saw a 15% decline in foreign direct investment (FDI) inflows; however, Brazil stood out with a remarkable 68% increase, reaching USD 85 billion, driven by higher profit reinvestment and shifts in inter-company debt Despite the overall decrease in FDI, the United States retained its status as the top destination for foreign investment globally.
2022, receiving USD 318 billion China followed closely with USD 180 billion, and Brazil received USD 85 billion in FDI inflows
Figure 2.2 FDI inflows to selected countries, 2021-22 (USD billion)
Source: OECD International Direct Investment Statistics database 2.2.1.2 Outflows
Despite a 14% decline in FDI outflows from the OECD region, totaling USD 1,067 billion, excluding Luxembourg reveals a 9% increase, largely driven by unprecedented outflows from Australia Additionally, Sweden and the UK experienced growth due to intra-company debt movements, while Spain rebounded from negative outflows in 2021 However, when Luxembourg is excluded, EU27 outflows fell by 7%, significantly impacted by Ireland's equity disinvestments.
Figure 2.3 FDI outflows from selected areas, 2005-22 (USD billion)
Source: OECD International Direct Investment Statistics database
In 2022, foreign direct investment outflows from G20 economies increased by 5%, driven by a 16% rise from OECD G20 nations, while non-OECD G20 economies experienced a significant 28% decline The United States led this trend with the highest outflow, totaling $403 billion, followed by Japan and China with $162 billion in outflows.
$150 billion, respectively, solidifying their positions as major players in the global FDI market
Figure 2.4 FDI outflows from selected countries, 2021-22 (USD billion)
Source: OECD International Direct Investment Statistics database
2.2.2 Assessing OECD countries’ performance on SDGs
Achieving the Sustainable Development Goals (SDGs) requires a thorough understanding of each country's strengths and weaknesses in relation to the 169 targets The evaluation highlights current progress, with the length of the bar in the inner circle representing how much further each country needs to go—indicating that a longer bar signifies a smaller distance left to cover.
Additionally, it assesses whether OECD nations are moving towards achieving their goals by 2030 (or at least making progress), as indicated by the outer circle
In conclusion, while some goals have been met, there remains a need for substantial progress in various areas across OECD countries These nations must enhance their efforts to ensure inclusivity, restore trust in institutions, and alleviate environmental pressures.
Figure 2.5 OECD average distance from achieving SDG targets
Source: OECD International Direct Investment Statistics database
The OECD region's population generally experiences a satisfactory standard of living, as indicated by Table 2.2, which outlines targets with the shortest average distances Notably, the current OECD average has exceeded the intended goal levels Among the 28 targets assessed, 10 show an average distance of zero, while the remaining 18 targets are nearing their goals, with an average distance of less than 0.5 standardized measurement units.
OECD nations face a challenging path to achieve the 21 objectives outlined for 2030, as many member countries failed to meet the 2020 targets The persistent lack of progress in addressing inequalities and exclusion highlights a stagnation in improvement since the OECD's 2019 findings Alarmingly, around 125% of OECD residents qualify as income poor, based on the relative standard of half the median income in their countries (Targets 1.2 and 10.2) Despite the passage of time, most OECD nations have not demonstrated significant advancements in reducing poverty according to this measure.
Table 2.1 Lowest OECD average distances to targets and recent trends
Source: OECD International Direct Investment Statistics database
Table 2.2 Largest OECD average distances from targets and recent trends
Source: OECD International Direct Investment Statistics database
Various demographic groups, particularly women and young adults, face additional challenges in reaching their specific goals, leading to significant disparities Despite progress, women continue to encounter limitations regarding their rights and opportunities in both private and public sectors No OECD member country has achieved gender equality in higher political, economic, or public positions, and efforts to reduce gender pay gaps and balance paid versus unpaid work remain insufficient (Targets 5.4 and 5.5).
Disadvantages in education often originate in early childhood and tend to worsen with age, influenced by factors like economic status, gender, and geographical location (Target 4.5) Consequently, a significant number of children, teenagers, and adults lack essential skills needed to engage as responsible and active members of their communities (Target 4.6).
Unhealthy behaviours (such as inadequate diet and smoking) can worsen disparities even more Smoking (Target 3 a), excessive alcohol consumption (Target 3
The impacts of foreign direct investment on sustainable development
2.3.1 The impacts of FDI on productivity and innovation
2.3.1.1 FDI has the potential to directly boost productivity
Foreign companies significantly influence productivity and innovation across various sectors, with their operations directly impacting these areas (Cadestin et al 2018) When foreign direct investment (FDI) targets industries characterized by high productivity and innovation, it fosters positive growth in overall industrial performance Conversely, if FDI is directed towards low-value-added and less innovative sectors, it can hinder productivity and innovation outcomes.
Foreign Direct Investment (FDI) has the capacity to transform the distribution of productive and innovative activities within OECD economies, leading to increased R&D intensity and labor productivity in sectors that attract more FDI Notably, these sectors demonstrate significant enhancements in labor efficiency compared to others The focus of FDI on high-performing industries varies among OECD countries, with a higher concentration in nations rich in natural resources Countries such as Norway, the Netherlands, and Canada, known for their robust mining and extraction industries, attract substantial investments from foreign multinational corporations due to their high profitability and significant capital requirements.
Several OECD member countries are significantly investing in R&D within their manufacturing sectors, particularly in electronic devices, machinery, and chemicals, as well as in professional services like consulting There is a notable correlation between higher levels of foreign direct investment (FDI) and sectors such as logistics, finance, and communications In the United States, over 50% of new foreign investments in eco-friendly initiatives are directed towards advanced technology and R&D industries However, research on developing countries reveals mixed outcomes regarding foreign firms' engagement in efficient industries and overall process improvements, largely because labor-intensive sectors attract more FDI, which tends to result in lower levels of innovation compared to capital-intensive manufacturing.
Figure 2.6 Conceptual framework: Impacts of FDI on productivity and innovation
Foreign investors are increasingly drawn to technology-driven sectors, and the positive impact of foreign direct investment (FDI) on productivity growth can be linked to the superior proficiency of foreign firms compared to domestic ones When FDI outperforms local companies, it has the potential to improve the overall efficiency of industries that typically add low value The FDI Qualities Indicators reveal that the productivity disparity between foreign and local firms varies across OECD countries and emerging markets, with some nations showing significant gaps while others have minimal differences.
Figure 2.7 Concentration of FDI based on sectoral productivity and R&D performance
(FDI is concentrated in relatively higher performing sectors if score > 0)
Source: OECD International Direct Investment Statistics database
Figure 2.8 Productivity premium of foreign firms in OECD and non-OECD economies
Source: OECD International Direct Investment Statistics database 2.3.1.2 FDI can involve productivity and innovation spillovers on host economy firms
Foreign Direct Investment (FDI) enhances productivity in domestic SMEs by introducing advanced knowledge and technology, as foreign firms often outperform local ones Domestic businesses can leverage this influx of knowledge through various channels, such as value chain connections, collaborations, competition, imitation, and workforce mobility The effectiveness of these channels depends on specific contextual factors, including the nature of the FDI, the capabilities of domestic firms, and the broader policy and non-policy environment.
The value chain relationships illustrate the movement of goods and services between suppliers and customers, covering both upstream and downstream interactions This dynamic includes knowledge transfer from multinational enterprises' foreign subsidiaries to local suppliers and clients, alongside strategic partnerships that extend beyond conventional buyer-supplier ties, such as collaborative efforts in research and development and enhancements in workforce and management capabilities.
Domestic businesses can expand their sales and enhance product quality by leveraging backward linkages with multinational corporations (MNCs) These MNCs often seek higher quality resources from local suppliers, fostering knowledge transfer as they share technology and effective practices (OECD 2022) The influence of foreign direct investment (FDI) is particularly pronounced in vertical supply chains, rather than in direct competition with local firms, where rivalry is more prevalent (Rojec and Knell 2017, Javorcik 2004, Blalock & Gertler 2008).
In essence, establishing robust connections with local businesses can consolidate the presence of foreign subsidiaries within a country's economy, reducing the likelihood of them relocating elsewhere (OECD 2022)
Global Value Chains (GVCs) have fostered innovative collaborations between Foreign Direct Investment (FDI) and Small and Medium-sized Enterprises (SMEs), particularly in high-tech and knowledge-based industries These partnerships facilitate technology exchange and joint research and development initiatives across borders Strategic alliances can be formed through various methods, including joint ventures, licensing agreements, contract manufacturing, research collaborations, and technology partnerships This shift towards inclusive innovation has enabled SMEs to gain improved access to technological advancements.
Open innovation has become a prominent strategy for enhancing internal innovation and expanding market reach Major corporations are increasingly engaging in this shift by forming strategic partnerships with smaller companies and creating innovation labs and accelerators to nurture new business ideas Multinational corporations often seek specialized talent and expertise within the small and medium-sized enterprises (SMEs) and startup ecosystems of their host countries.
Moving skilled foreign employees of multinational companies to local firms could bring new knowledge and competencies to local economies
Labour mobility significantly enhances knowledge transfer between foreign direct investment (FDI) companies and local firms This movement of multinational enterprise (MNE) workers can take various forms, including temporary detachments, long-term open-ended contracts, or the establishment of start-ups by MNE employees Research shows that businesses founded by MNE managers tend to exhibit higher productivity levels compared to other local enterprises.
Research in Norway's manufacturing sector indicates that employees transitioning from foreign-owned to domestic firms retain valuable skills and expertise, leading to a 20% increase in output compared to those without foreign experience.
A recent OECD study on Ireland revealed that between 2009 and 2015, over 25% of workers in foreign-owned companies opted to move to local businesses or start their own ventures Additionally, more than 33% of new entrepreneurs had previously worked for foreign firms From 2006 to 2016, at least half of patent inventors changed employers at least once, highlighting the importance of knowledge transfer from foreign direct investment (FDI) and the mobility of inventors for Ireland's economic landscape.
Domestic firms can gain valuable knowledge and improve their skills by taking on foreign MNEs as competitors and by adopting their business strategies
The presence of international corporations intensifies competition for local businesses, pushing them to improve their innovation and skills to retain talent Advanced regulations from these global firms in product development, quality control, and fast delivery can drive technological progress, new product launches, and better management practices among domestic companies, ultimately leading to increased productivity Local enterprises can learn from the effective strategies of international organizations, using these insights and informal learning to boost their efficiency and competitiveness.
Local firms that fail to adapt may face exit due to increased competition from foreign companies The heightened competition for talent can challenge domestic businesses in attracting skilled personnel Companies within the same industry or value chain as foreign firms are particularly vulnerable to these effects Notably, horizontal spillovers from foreign direct investment (FDI) are rare and primarily impact larger domestic firms.
2.3.1.3 The effects of FDI rely on various contextual elements such as magnitude and direction
The presence and potential benefits of FDI can be affected by the domestic economy's industrial structure, level of specialisation, and international engagement
Foreign Direct Investment (FDI) inflow is primarily influenced by a country's technological sophistication, economic specialization, and industrial structure Different economies possess unique comparative advantages, resulting in varying FDI patterns, with some nations attracting more knowledge-intensive investments Countries with high productivity and advanced technology industries are better positioned to leverage the knowledge and innovations brought by foreign multinational corporations Consequently, more developed industrial nations typically attract greater FDI in productive sectors that utilize advanced technology, thereby enhancing their industrialization process.
Assessment of the impacts of foreign direct investment on sustainable
Foreign Direct Investment (FDI) plays a crucial role in advancing the Sustainable Development Goals (SDGs) by fostering growth, innovation, and high-quality employment in host nations It enhances human capital and promotes improved living standards and environmental sustainability Additionally, FDI connects local firms with multinational enterprises (MNEs), aiding domestic companies in entering global markets and integrating into global value chains (GVCs).
Foreign Direct Investment (FDI) significantly boosts productivity and innovation in host economies by enhancing local enterprises through two main avenues Firstly, the arrival of skilled employees from multinational enterprises (MNEs) infuses new knowledge and expertise into the local market Secondly, domestic businesses gain valuable insights and growth opportunities by competing with and emulating the operational strategies of foreign MNEs.
The potential benefits of Foreign Direct Investment (FDI) are significantly influenced by the domestic economy's industrial structure, specialization, and level of internationalization Domestic firms that excel in knowledge absorption are better positioned to integrate innovative knowledge and advanced technologies into their production processes Additionally, economic geography plays a vital role in shaping the agglomeration and network dynamics of these firms, which is essential for maximizing the advantages of FDI.
Foreign Direct Investment (FDI) enhances employment quality and skills by creating job opportunities both directly and indirectly The exchange of knowledge between foreign and local businesses, facilitated by value chain connections and labor mobility, positively impacts productivity, wages, and overall employment Additionally, domestic firms benefit from adopting practices and innovations from their foreign competitors.
Foreign Direct Investment (FDI) can significantly impact gender equality in the labor market through various channels, although its effects can vary widely.
The presence of international companies enhances competition for domestic firms, driving them to improve innovation and productivity to retain talent If local businesses do not adapt quickly, they risk facing competition from foreign firms, which could lead to closures This competition for skilled workers presents challenges for local businesses, especially those in the same industry as foreign companies Consequently, horizontal spillovers from foreign direct investment (FDI) are rare and primarily impact larger domestic companies.
Foreign Direct Investment (FDI) has varied effects on job quality and labor market outcomes in host countries, highlighting the importance of understanding these nuanced impacts Not all segments of the population benefit equally from FDI, leading to wage disparities among firms and employees, largely due to skill-based wage differentials Additionally, there is uncertainty surrounding foreign corporations, as local businesses may experience negative effects, such as irresponsible labor practices and a loss of skilled labor to these firms The extent of these adverse effects often depends on how quickly the labor market can adjust to changes Furthermore, FDI may not significantly increase the proportion of skilled workers in an economy and can worsen wage inequalities, especially in environments with skill shortages and limited labor mobility.
Foreign Direct Investment (FDI) does not necessarily promote gender equality, as significant disparities and biases persist in labor markets across both OECD and developing countries Women often occupy lower-paid service roles and earn less than men, highlighting a lack of female representation in higher-paying executive positions FDI tends to favor male-dominated sectors like construction, finance, and transportation, which limits women's opportunities for advancement While increased female participation in these industries may boost workforce numbers, it risks perpetuating the gender gap by confining women to low-skilled, low-paying jobs, thereby reinforcing traditional gender-specific labor roles.
Foreign Direct Investment (FDI) spillovers indicate that multinational corporations bring advanced technologies that can significantly improve environmental performance and facilitate the adoption of low-carbon technologies These spillovers arise from knowledge exchange between foreign and domestic firms, primarily through market interactions and workforce mobility The degree of these spillover effects varies based on the technology involved and the channels through which they operate Additionally, the pollution haven hypothesis posits that countries with lax environmental regulations attract polluting industries, resulting in harmful competition that undermines environmental standards.