The Heterogeneous Effects of Outward FDI on Domestic Employment

Abstract

Over the past few decades, for multinational enterprises (MNEs), the strategy of using outward foreign direct investment (OFDI) for seeking better business opportunities has played an important role in increasing their production efficiency and overseas sales. Nevertheless, an increase in OFDI has raised widespread public concerns about the possibility of domestic job losses because OFDI could transfer certain domestic production activities to foreign affiliates, so that some domestic workers are replaced with foreign labor. With rising concerns over job displacement, a number of researchers have examined a relationship between OFDI and employment of a source country. Unfortunately, these studies have produced mixed results and there still remain many controversies and unanswered questions regarding the employment effect of OFDI. It turns out that the employment effect of OFDI in a source country depends on the type of overseas investment (for example, efficiency-seeking, market-seeking, export-platform-seeking, technology-seeking), workers' skill level (low-, medium- or high-skilled) and employment status (permanent or temporary).