erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

FDI and Technological Progress from a labour demand function: Analysis of the Spanish Case

Maria Angeles Tobarra Gomez (University of Exeter, UK)

Abstract

FDI and Technological Progress from a labour demand function. Analysis of the Spanish case. Most governments compete nowadays to attract Foreign Direct Investment (FDI) to their territories. But does FDI always affect positively domestic investment, growth and employment? Using Solows neoclassical growth model as a starting point, the role of technological progress in growth has been highlighted and studied in countless articles. The revival of the interest for growth theory has originated from the search of endogenous mechanisms to explain that technological progress. In this approach, international transfers of technology and knowledge via trade and capital flows appear as another explanation for economic growth. We will focus on FDI as it can not only increase productivity in the host country if the MNE is more productive than the existing domestic firms, but also from technological spillovers than increase domestic firms productivity. In particular, we will follow Barrell & Pain (1997) and Hubert & Pain (1999). They start from a Cobb-Douglas or a CES production function to obtain a demand of labour function to be estimated, in which they assume that labour-augmenting technological progress is dependent on the stock of FDI. They use dynamic models to capture the possibility of adjustment costs in hiring and firing labour force so they get long-run and dynamic parameters for the elements in the labour demand function as well as the technological progress parameters corresponding to the different factors (human capital, R&D, and FDI). While Hubert and Pain apply this methodology to the estimation of labour demand functions for the United Kingdom and Germany, we try to do that using Spanish data, what is itself a different problem because of data availability. We will try those possible positive effects from FDI in domestic productivity and we will compare our results with those of Hubert and Pain for the other European countries. A further line of research by exploiting the comparison between different sources of FDI data for Spain will be also attempted in the hope that, in spite of the data problems, some insights into that aggregate effect can be identified.

Economic Research Center
Middle East Technical University
06531 Ankara Turkey
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e-mail: metuerc@metu.edu.tr