Skills of the domestic labor force an ace in the game for FDIled economic upgrading Cases of small h

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"Skills of the domestic labor force - an ace in
the game for FDI-led economic upgrading? Cases of
small highly transnationalized European
economies."

• Katerina Svickova
• Central European University
• Presentation at University of Tartu, 18.11.2009

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What I would like to do in my presentation

• Explain my research question
• Present my hypotheses
• Show some empirical evidence
• FDI penetration and composition
• Broad approach to FDI by governments
• Roles of investment promotion agencies
• Education

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Research question broken down in sub-questions

• Can differences in skill-formation policies have
  an effect on the type of FDI attracted and the
  subsequent development of the subsidiaries in the
  country?
• Can the promotion and emphasizing of the host
  country skills towards potential investors have
  such effect?
• What role do MNEs ascribe to the skills of the
  labor force in the host country in their
  strategic decisions about locating (and
  development) of concrete production and service
  activities?

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Why the question?

• My main aim better understanding of economic
  development of small countries that based their
  development strategy on economic openness and
  inflow of foreign capital

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What do I build on?

• Growing transnationalization activities of
  enterprises over the past few decades as a means
  of enhancing their competitiveness
• Increasing knowledge- or information-intensity of
  value-adding activities

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What do I build on?

• Economic development/spillovers are more likely
  to occur from investments in technologically
  intensive sectors and from those activities
  located by the MNE in the host country that
  involve skill- and knowledge-intensive work of
  the domestic labor force

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What do I build on?

• The extent to which skills and knowledge are
  provided, and how they are provided, may have a
  considerable influence on the competitiveness of
  enterprises
• State has a crucial role in the skill- and
  knowledge-provision and generation

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Hypotheses

• H1a Credible, consistent and vocalized
  skill-related policies facilitate entry of more
  knowledge- and skill-intensive FDI and its
  subsequent upgrading.

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Hypotheses

• H1b Lacking, inconsistent and not-vocalized
  skill-related policies underpin the entry of
  basic production activities and a lower
  propensity to upgrading over time.

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Hypotheses

• H2 Presentation of the skill-related advantages
  to foreign investors matters to how they perceive
  the potential investment location and what
  activities they locate in the host country
  (initially as well as over time when already
  present).

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Research design

• Comparative case study method cases of countries
  and companies
• Czech Republic, Estonia, Ireland
• Electronics sector
• Tracing the development from the second half of
  1990s (Czech Rep. and Estonia) and since
  1960s/1970s in Ireland

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FDI penetration

• Inward FDI penetration FDI stock as a of GDP
• Source UNCTAD, FDI database. Extracted on
  16.05.09

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FDI inward stock, DL electrical and optical
equipment, eur mn

• Source WIIW Database on Foreign Direct
  Investment 2009

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Share of electronic and electrical machinery and
equipment in the overall commodity export, 1995
and 2006,

• Source UN COMTRADE database http//comtrade.un.o
  rg/db

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Overall economic policy and approach to FDI

• ESTONIA
• liberal economic policy,
• openness to foreign investors,
• no special active attraction strategies,
  reliance on attractiveness of low taxes, low cost
  of labour force
• Might be changing?
• introduction of training support since 2006
  (co-financed from the EU Structural Funds)
• Competence Centre Programme

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Overall economic policy and approach to FDI

• CZECH REPUBLIC
• initially hesitant to foreign investment but
  change in the second half of 1990s, esp. 1998
• Government Resolution No 298/98 of 29 April 1998
  and Investment Incentives Act in 2000 first
  state in Central and Eastern Europe to have an
  investment incentive scheme embodied in its
  legislation
• 2002 extension of the investment incentive
  scheme to include strategic services and
  technology
• 2004, the Strategy for Sustainable Development of
  the Czech Republic besides generating enough
  needed skills, the complexity of the economy
  should be also promoted

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Investment promotion

• Estonian Investment Agency
• established in 1994,
• provides information on investment opportunities
  and helps foreign investors to identify
  joint-venture partners and implement projects
• Main elements of attractiveness presented on
  website hourly wages being just a fraction of
  those in Western Europe combined with an
  excellent business environment and simple,
  business-friendly legislation

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Investment promotion

• Czechinvest
• established in 1992,
• Initially to offer foreign investors
  comprehensive services (information, consulting,
  finding contacts), provide information on
  investment opportunities and help to identify
  joint-venture partners
• Later broadened its scope to include selected
  industrial sectors incl. electronics and
  microelectronics
• website of Czechinvest now contains factsheets on
  the skill-endowment of the country to promote
  domestic skills as well as existing (domestic and
  foreign) skill-intensive enterprises ad partners
  for potential alliances to incoming investors

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Expenditure on education as of GDP or public
expenditure

• Source Eurostat

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• Percentage of people with tertiary education
  qualification in the population aged 30-34 years,
  2002
• CZE 12,5
• EST 28,6
• IRE 32,4
• EU-25 24,3
• Source Eurydice. Key Data on Education in Europe
  2005

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• Percentage of those who have satisfactorily
  completed at least upper secondary education,
  2002
•  
• CZE 91,7
• EST 80,4
• IRE 83,9
• EU-25 76,6
• Source Eurydice. Key Data on Education in Europe
  2005

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Distribution of upper secondary students between
vocationally and generally oriented programmes,
2001/2002,

• Source Eurydice. Key Data on Education in Europe
  2005

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• Percentage of students enrolled in science,
  mathematics and computing, and engineering,
  manufacturing and construction, 2001/2002
• CZE 31,5
• EST20,9
• IRE 34,4
• EU25 26
• Source Eurydice. Key Data on Education in Europe
  2005

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Conclusions

• High FDI penetration but differences in sectoral
  composition and activities relocated by MNEs
• Differences in approaches to investors (foreign
  but also domestic) and differences in emphasizing
  skills
• Differences in skill-endowment of the domestic
  labor force resulting from different policy
  approaches to skill formation

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• Thank you for your attention!
• My contact details
• Katerina Svickova
• iphsvk01_at_phd.ceu.hu or katka.svickova_at_gmail.com