Perspectives from Middle East and North African Countries
Edited by Carlo Altomonte and Massimiliano Ferrara
Chapter 3: Employment creation through inward FDI in the EMFTA and employment linkages within sectors
The main idea of this chapter is to investigate the relationship between inward Foreign Direct Investment (FDI), employment and productivity in three Mediterranean countries: Morocco, Tunisia and Egypt. In this context, one needs to consider the real contribution of the inflow of foreign capital, in particular the effects on domestic employment and labour productivity, since employment and job creation are central priorities for the region (FEMISE, 2010). There are two channels for inward FDI to generate employment in the host country. First, foreign affiliates employ people in their domestic operations and this effect is maximized with greenfield investments. The new entry in the host market may have secondary effects, since it increases the number of competitors in the domestic industry and then it may reduce employment elsewhere in the economy, a sort of competition effect. Different effects occur in the case of acquisition or mergers with domestic firms, such as buying privatized firms. The immediate effects are ambiguous: these mergers may lower employment as an immediate effect of the rationalization in the use of labour and may reduce the number of competitors by taking out a local firm. In the medium term the post-merger effects may be positive when the competitive environment remains open and healthy, as it is when inward FDI flows are associated with the better export orientation. Second, through backward and forward linkages, employment is created in enterprises that are suppliers, subcontractors or service providers.
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