Foreign direct investment and labor productivity: An examination of the manufacturing sector in Brazil

As a primary source of international finance for developing countries, foreign direct investment (FDI) is theorized to strengthen the technical efficiency and human capital of local domestics, and, in turn, to produce gains in labor productivity. Although quantitative research over the past few decades has generally been mixed, more recent studies have demonstrated that the effect of FDI on labor productivity outcomes appears to be dependent on conditional factors, such as differences in industrial linkages. Drawing data from the 2003 Enterprise Survey of Brazil, the current study analyzes the effect of FDI on labor productivity outcomes for local domestics operating in the Brazilian manufacturing sector. Firstly, the current study finds the relationship between FDI in a given industry and labor productivity amongst local domestics operating in the same industry (intra-industry) to be negative. Secondly, the current study finds the relationship between FDI in a given industry and labor productivity amongst local domestics operating in a different industry (inter-industry) to be positive. With a state's natural resources, technical efficiency, and human capital as leading productive inputs, the findings from the current study directly inform subsequent trade and education policy initiatives.