The Effect of foreign direct investment on structural change in developing countries: an examination of the labor productivity dimension

Ezo Emako, Seid Nuru and Mesfin Menza

Cogent Business & Management, 2022, vol. 9, issue 1, 2135209

Abstract: Developing countries require overall labor productivity to sustain their economic growth. Overall labor productivity, on the other hand, cannot be achieved without structural change. Because developing countries lack sufficient resources, foreign direct investment (FDI) is recommended for them to realize structural change. Therefore, the primary purpose of this study is to estimate the effect of FDI on the structural change in labor productivity in developing countries from 1990 to 2018 using Driscoll and Kraay’s estimation. The study found that foreign direct investment boosts overall labor productivity by facilitating “structural change” and improving “within-sector” labor productivity. Furthermore, variables such as export, population size, domestic capital, human capital, and the usage of chemical fertilizer all have a positive and significant effect on labor productivity. On the contrary, government expenditure, the development of infrastructure, and the utilization of large areas of land have all been discovered to have a negative effect on labor productivity. However, per capita income has a negligible effect on it. Therefore, developing countries should not only pay attention to the quantity of FDI but also to its quality by putting an emphasis on FDI in the manufacturing sector and export-based FDI. Additionally, increasing domestic capital through the mobilization of domestic savings and strengthening the use of technology, such as chemical fertilizer, may be essential policy directions to increase labor productivity.

Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/23311975.2022.2135209 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:oabmxx:v:9:y:2022:i:1:p:2135209

Ordering information: This journal article can be ordered from
http://cogentoa.tandfonline.com/journal/OABM20

DOI: 10.1080/23311975.2022.2135209

Access Statistics for this article

Cogent Business & Management is currently edited by Len Tiu Wright and Tahir Nisar

More articles in Cogent Business & Management from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().