The limits of foreign-led growth: Demand for skills by foreign and domestic firms

Jan Drahokoupil and Brian Fabo

Review of International Political Economy, 2022, vol. 29, issue 1, 152-174

Abstract: This paper addresses the use of skills in multinational companies compared to domestic firms. It thus assesses the contribution of foreign direct investment to skill development as well as the potential for spillovers from multinational to domestic firms. It analyzes demand for skilled labor in Slovakia, a country that is characterized by a high degree of dependence on inward foreign investment. Our framework distinguishes between demand for digital skills on two levels: occupational structure; and skill content within occupations. It is on the latter level that the limits of the foreign-led growth can be observed. Using a large dataset on vacancies from a leading job portal, we show that foreign-owned companies generally advertise for higher-skilled occupations than domestic firms, but their skill requirements for these jobs are lower than in similar jobs in domestic companies. Foreign companies have higher skill requirements only in some blue collar jobs linked to assembly and component manufacturing. For white collar occupations, domestic companies are more likely to require digital skills. Domestic firms thus have a key role in skill development also in an economy where foreign companies exhibit higher productivity and innovation intensity.

Date: 2022
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DOI: 10.1080/09692290.2020.1802323

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