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The Effect of Foreign Direct Investment on Labour Productivity: An Overview of an Empirical Study of Estonia and Slovenia

Priit Vahter ()

No 123, Working Papers from Tallinn School of Economics and Business Administration, Tallinn University of Technology

Abstract: This paper studies the effects of foreign direct investment on labour productivity in manufacturing industries of two transition countries, Estonia and Slovenia. The emphasis is on the dimension of export/local market orientation. The study is based on firm-level panel data. It is shown that in Estonia the export oriented foreign investment enterprises have on average much lower labour productivity than the domestic market oriented foreign affiliates. In Slovenia, on the contrary, the export orientation of foreign affiliates is not correlated with lower labour productivity. No horizontal spillover of foreign direct investment to domestic firms is detected in Estonia. In Slovenia, however, positive spillovers to domestic firms are found. The findings show also that different types of foreign direct investment can have different effects on the host country and that the existence of positive spillover may depend on the level of economic development of the host country.

Keywords: foreign direct investment; productivity; spillovers; export oriented foreign direct investments (search for similar items in EconPapers)
JEL-codes: F10 F21 F23 (search for similar items in EconPapers)
Pages: 18
Date: 2005
New Economics Papers: this item is included in nep-eff, nep-int and nep-tra
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Published in Working Papers in Economics, School of Economics and Business Administration,Tallinn University of Technology (TUTWPE), Volume 14, Pages 67-84

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