An Empirical Investigation of the Effects of Foreign Direct Investment on the Skill Intensity of Host Country Employment

It has been argued that the effects of inward FDI on skill upgrading and wage inequality depend on the outcome of specialisation according to comparative advantages. However, predicting the overall impact of FDI on wage inequality is complex depending on country specific effects, namely how large are differences in skilled and unskilled wages and the skill intensity of employment in foreign-owned firms compared to domestic ones, as well as the relative size of employment in domestic and foreign-owned firms (Zulfiu-Alili, 2014). Hence, the effect of foreign ownership on relative wages and skill intensity will vary between sectors, across countries and over time. The effect of FDI on the skill intensity of employment in transition economies is analysed using the Business Environment and Enterprise Performance Survey (BEEPS) undertaken in three waves 2002, 2005 and 2009. The question to be addressed is whether foreign-owned firms employ a more educated and skilled workforce in comparison to domestic-owned firms. Results suggest that foreign-owned firms have a better educated labour force but have a lower share of skilled and unskilled employees compared to domestic firms.