Local labor market effects of FDI: job growth and skills demand in Vietnam

Banh Thi Hang, Ian Coxhead and Dinh Tuan Nguyen Vuong

No 1005, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: Foreign direct investment (FDI) in manufacturing industries creates jobs in laborabundant developing economies, but does it also promote human capital development? We investigate the net contribution of FDI to employment and demand for skills in Vietnam, a country undergoing an economic boom driven by dramatic growth in export-oriented manufacturing. Nearly all job growth within this sector is due to FDI, so direct employment growth and skill mix outcomes largely reflect external choices over production scale and technology. FDI alters local labor markets directly, and also indirectly by stimulating growth and jobs in domestic firms. We estimate local FDI employment multipliers for total jobs and for labor by level of educational attainment. Our study seeks to fill a knowledge gap on the contribution of "factory to the world” strategies to human capital formation and economic growth.

Keywords: local; labor; market|multiplier|FDI|skill; premium|Vietnam (search for similar items in EconPapers)
JEL-codes: F16 F21 J23 J24 O12 (search for similar items in EconPapers)
Date: 2026-03
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Published in IDE Discussion Paper = IDE Discussion Paper, No.1005. 2026-03

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