The Economic and Political Aftermath of the Arab Spring

The Economic and Political Aftermath of the Arab Spring

Perspectives from Middle East and North African Countries

Edited by Carlo Altomonte and Massimiliano Ferrara

The economies of the Middle East and North Africa (MENA) region have always been characterized by economic volatility and social disparities. The recent ‘Arab Spring’ wave of protests has increased political uncertainty and instability in the region, and this timely book provides an in-depth analysis of the subsequent changes from economic, political and environmental perspectives. The international contributors provide a comprehensive overview of the situation in the Mediterranean Basin, addressing a wide range of contributing factors including: • productivity and innovation • trade and foreign investment • changing geo-political equilibria • labour markets and the role of women • the environment, climate change and energy sourcing.

Chapter 3: Employment creation through inward FDI in the EMFTA and employment linkages within sectors

Sergio Alessandrini

Subjects: development studies, development economics, development studies, economics and finance, development economics, political economy, politics and public policy, international politics, islamic studies, political economy

Extract

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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