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Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye

Year 2023, Issue: 95, 12 - 21, 26.12.2023

Aytuğ Sözüer

https://doi.org/10.26650/imj.2023.95.1335148

Abstract

This study aims to determine the presence of foreign direct investment (FDI) spillovers in Türkiye by examining the labor productivity of manufacturing firms. Based on relevant theoretical frameworks and empirical evidence, the research compares foreign-capitalized and domestic companies in Türkiye in 27 industries between 2011 and 2019. The analysis uses a multiple crosssectional design based on data from the Istanbul Chamber of Industry’s annual reports. Throughout the chosen period, consecutive equivalence tests show that labor productivity is comparable among firms in the same industry with both domestic and foreign equity. This finding reveals a convergence in labor productivity levels between foreign-capitalized and domestic firms, confirming foreign ownership’s positive influence on Türkiye’s manufacturing sector. The finding is consistent with prior research conducted in the Turkish context and supports the notion that FDI facilitates intra-industry spillovers, contributing to the nation’s overall labor productivity growth under endogenous growth theory principles. The study highlights several avenues for harnessing the benefits of FDI for Türkiye’s economic growth and competitiveness in terms of policy and practice recommendations. Policymakers are encouraged to foster a stable and appealing business environment for foreign capital by implementing regulatory reforms and streamlining bureaucracy. The emphasis on technology transfer and knowledge spillovers should be a priority, with incentives for research collaborations and education programs to enhance the skills of the domestic workforce. Regional development initiatives and sector-specific policies can further optimize the impact of FDI. In addition, domestic companies can also play a pivotal role by engaging in collaborations, investing in human capital, adopting advanced technologies, and embracing a culture of continuous improvement to leverage FDI-induced productivity gains. Future research should look at sector-specific analyses, regional disparities, firm heterogeneity, and the effectiveness of existing FDI-related policies, all of which will contribute to a more comprehensive understanding of FDI’s role in Türkiye’s labor productivity, competition, and economic development.

JEL Classification : F23 , J24 , O19

Keywords

FDI spillovers factor productivity

References

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  • Koçtürk, M., & Eker, M. (2012). Dünyada ve Türkiye’de doğrudan yabancı sermaye yatırımları ve çok uluslu şirketlerin gelişimi. Tarım Ekonomisi Dergisi, 18(1), 35-42. google scholar
  • Kugler, M. (2006). Spillovers from foreign direct investment: Within or between industries? Journal of Development Economics, 80(2), 444-477. google scholar
  • Lenger, A., & Taymaz, E. (2006). To innovate or to transfer? A study on spillovers and foreign firms in Turkey. Journal of Evolutionary Economics, 16(1-2), 137-153. google scholar
  • MacDougall, G. D. A. (1960). The benefits and costs of private investment from abroad: A theoretical approach. Economic Record, 36, 13-35. google scholar
  • Mara, C. A., & Cribbie, R. A. (2012). Paired-sample tests of equivalence. Communications in Statistics - Simulation and Computation, 41(10), 1928-1943. google scholar
  • Markusen, J. R. (1995). The boundaries of multinational enterprises and the theory of international trade. The Journal of Economic Perspectives, 9(2), 169-189. google scholar
  • Matthias Arnold, J., & Javorcik, B. S. (2009). Gifted kids or pushy parents? Foreign direct investment and plant productivity in Indonesia. Journal of International Economics, 79(1), 42-53. google scholar
  • OECD (Organisation for Economic Co-operation and Development). Data. GDP per hour worked. https://data.oecd.org/lprdty/gdp-per-hour-worked.htm google scholar
  • Ramirez, M. D. (2006a). Does foreign direct investment enhance labor productivity growth in Chile? A cointegration analysis. Eastern Economic Journal, 32(2), 205-220. google scholar
  • Ramirez, M. D. (2006b). Is foreign direct investment beneficial for Mexico? An empirical analysis, 1960-2001. World Development, 34(5),802-817. google scholar
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  • Serfraz, A. (2018). Foreign direct investment inflows and labor productivity in Pakistan: A sector-wise panel cointegration analysis. Asian Journal of Economics and Empirical Research, 5(1), 1-18. google scholar
  • Sun, S. (2011). Foreign direct investment and technology spillovers in China’s manufacturing sector. Chinese Economy, 44(2), 25-42. google scholar
  • Thuy, L. E. T. (2007). Does foreign direct investment have an impact on the growth in labor productivity of Vietnamese domestic firms? The Research Institute of Economy, Trade and Industry. Discussion Paper Series 07-E-021. google scholar
  • Tintin, C. (2012). Foreign direct investment, productivity spillovers and labor quality. International Journal of Economics and Finance Studies, 4(2), 57-66. google scholar
  • Tökes, L. (2019). The effect of foreign direct investment on firm labor productivity: Does the country of origin of the FDI matter? Society and Economy, 41(2), 227-243. google scholar
  • UNCTAD (United Nations Conference on Trade and Development) (2023). World investment report 2023, https://unctad.org/system/files/official-document/wir2023_en.pdf google scholar
  • Vinh, N. T. (2019). The impact of foreign direct investment, human capital on labor productivity in Vietnam. International Journal of Economics and Finance, 11(5), 97. google scholar
  • Vuksic, G. (2016). Effects of private ownership, trade, and foreign direct investment on labor productivity growth in transition economies: Evidence from the Croatian manufacturing industry. Emerging Markets Finance and Trade, 52(2), 322-335. google scholar
  • Wooster, R. B., & Diebel, D. S. (2010). Productivity spillovers from foreign direct investment in developing countries: A meta-regression analysis. Review of Development Economics, 14(3), 640-655. google scholar
  • Yasar, M., & Morrison Paul, C. J. (2007). International linkages and productivity at the plant level: Foreign direct investment, exports, imports and licensing. Journal of International Economics, 71(2), 373-388. google scholar
  • Yeaple, S. (2003). The complex integration strategies of multinationals and cross-country dependencies in the structure of foreign direct investment. Journal of International Economics, 60(2), 293-314. google scholar

Year 2023, Issue: 95, 12 - 21, 26.12.2023

Aytuğ Sözüer

https://doi.org/10.26650/imj.2023.95.1335148

Abstract

References

  • Aitken, B. J., & Harrison, A. E. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. The American Economic Review, 89(3), 605-618. google scholar
  • Alam, A., Arshad, M. U., & Rajput, W. U. (2013). Relationship of labor productivity, foreign direct investment, and economic growth: Evidence from OECD countries. Journal of Business and Management Sciences, 1(6), 133-138. google scholar
  • Arısoy, İ. (2012). The impact of foreign direct investment on total factor productivity and economic growth in Turkey. The Journal of Developing Areas, 46(1), 17-29. google scholar
  • Arslanoğlu, E. (2000). Spillover effects of foreign direct investments on Turkish manufacturing industry. Journal of International Development, 12, 1111-1130. google scholar
  • Asada, H. (2020). Effects of foreign direct investment and trade on labor productivity growth in Vietnam. Journal of Risk and Financial Management, 13(9), 204. google scholar
  • Bijsterbosch, M., & Kolasa, M. (2010). FDI and productivity convergence in Central and Eastern Europe: An industry-level investigation. Review of World Economics, 145(4), 689-712. google scholar
  • Blomström, M., & Kokko, A. (1998). Multinational corporations and spillovers. Journal of Economic Surveys, 12(2), 1-31. google scholar
  • Blomström, M., & Kokko, A. (2003). The economics of foreign direct investment incentives. National Bureau of Economic Research. Working Paper 9489. google scholar
  • Caves, R. E. (1971). International corporations: The industrial economics of foreign investment. Economica, 38, 1-27. google scholar
  • Caves, R. E. (1996). Multinational enterprise and economic analysis. Cambridge: Cambridge University Press. google scholar
  • Cheng, S. (2012). Foreign direct investment and productivity spillovers: Empirical evidence from Cambodia. Economics Bulletin, 32(3), 2015 2025. google scholar
  • Corden, W. M. (1967). Protection and foreign investment. Economic Record, 43, 209-232. google scholar
  • Desbordes, R., & Franssen, L. (2019). Foreign direct investment and productivity: A cross-country, multisector analysis. Asian Development Review, 36(1), 54-79. google scholar
  • DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147-160. google scholar
  • Djankov, S., & Hoekman, B. (2000). Foreign investment and productivity growth in Czech enterprises. The World Bank Economic Review, 14(1),49-64. google scholar
  • Dunning, J. H. (1993). Multinational enterprises and the global economy. Harlow: Addison-Wesley. google scholar
  • Erdoğan, A. I. (2011). Foreign direct investment and productivity spillovers: Evidence from Turkey. Journal of Applied Finance & Banking, 1(4), 185-199. google scholar
  • Fatima, S. T. (2016). Productivity spillovers from foreign direct investment: Evidence from Turkish micro-level data. The Journal of International Trade & Economic Development, 25(3), 291-324. google scholar
  • Fillat, C., & Woerz, J. (2011). Good or bad? The influence of FDI on productivity growth. An industry-level analysis. The Journal of International Trade & Economic Development: An International and Comparative Review, 20(3), 293-328. google scholar
  • Golejewska, A. (2009). Productivity spillovers from foreign direct investment in Polish manufacturing 1993-2006. Working Papers of Economics of European Integration Division 0902. google scholar
  • Görg, H., & Greenaway, D. (2004). Much ado about nothing? Do domestic firms benefit from foreign direct investment? The World Bank Research Observer, 19(2), 171-197. google scholar
  • Günşen, İ. (2015). Automotive industry: Economic effects of foreign direct investments in Turkey. Uludağ Journal of Economy and Society, 34(2), 19-34. google scholar Hanousek, J., Kocenda, E., & Maurel, M. (2011). Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis. Economic Systems, 35(3), 301-322. google scholar
  • Hussain, A. (2017). Foreign direct investment (FDI) and its impact on the productivity of domestic firms in Pakistan. Pakistan Business Review,January, 792-812. google scholar
  • Hymer, S. H. (1960). The international operations of national firms: A study of direct foreign investment (Ph.D. Dissertation). The Massachusetts Institute of Technology, USA. google scholar
  • ISO (Istanbul Chamber of Industry). Top 500 Industrial Enterprises. https://www.iso.org.tr/projects/top-500-industrial-enterprises. google scholar
  • Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. The American Economic Review, 94(3), 605-627. google scholar
  • Karentina, R. (2019). The spillover effects of foreign direct investment on labor productivity. Economic Journal of Emerging Markets, 11(1),32-45. google scholar
  • Khawar, M. (2003). Productivity and foreign direct investment - Evidence from Mexico. Journal of Economic Studies, 30(1), 66-76. google scholar
  • Koçtürk, M., & Eker, M. (2012). Dünyada ve Türkiye’de doğrudan yabancı sermaye yatırımları ve çok uluslu şirketlerin gelişimi. Tarım Ekonomisi Dergisi, 18(1), 35-42. google scholar
  • Kugler, M. (2006). Spillovers from foreign direct investment: Within or between industries? Journal of Development Economics, 80(2), 444-477. google scholar
  • Lenger, A., & Taymaz, E. (2006). To innovate or to transfer? A study on spillovers and foreign firms in Turkey. Journal of Evolutionary Economics, 16(1-2), 137-153. google scholar
  • MacDougall, G. D. A. (1960). The benefits and costs of private investment from abroad: A theoretical approach. Economic Record, 36, 13-35. google scholar
  • Mara, C. A., & Cribbie, R. A. (2012). Paired-sample tests of equivalence. Communications in Statistics - Simulation and Computation, 41(10), 1928-1943. google scholar
  • Markusen, J. R. (1995). The boundaries of multinational enterprises and the theory of international trade. The Journal of Economic Perspectives, 9(2), 169-189. google scholar
  • Matthias Arnold, J., & Javorcik, B. S. (2009). Gifted kids or pushy parents? Foreign direct investment and plant productivity in Indonesia. Journal of International Economics, 79(1), 42-53. google scholar
  • OECD (Organisation for Economic Co-operation and Development). Data. GDP per hour worked. https://data.oecd.org/lprdty/gdp-per-hour-worked.htm google scholar
  • Ramirez, M. D. (2006a). Does foreign direct investment enhance labor productivity growth in Chile? A cointegration analysis. Eastern Economic Journal, 32(2), 205-220. google scholar
  • Ramirez, M. D. (2006b). Is foreign direct investment beneficial for Mexico? An empirical analysis, 1960-2001. World Development, 34(5),802-817. google scholar
  • Romer, P. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002-1037. google scholar
  • Serfraz, A. (2018). Foreign direct investment inflows and labor productivity in Pakistan: A sector-wise panel cointegration analysis. Asian Journal of Economics and Empirical Research, 5(1), 1-18. google scholar
  • Sun, S. (2011). Foreign direct investment and technology spillovers in China’s manufacturing sector. Chinese Economy, 44(2), 25-42. google scholar
  • Thuy, L. E. T. (2007). Does foreign direct investment have an impact on the growth in labor productivity of Vietnamese domestic firms? The Research Institute of Economy, Trade and Industry. Discussion Paper Series 07-E-021. google scholar
  • Tintin, C. (2012). Foreign direct investment, productivity spillovers and labor quality. International Journal of Economics and Finance Studies, 4(2), 57-66. google scholar
  • Tökes, L. (2019). The effect of foreign direct investment on firm labor productivity: Does the country of origin of the FDI matter? Society and Economy, 41(2), 227-243. google scholar
  • UNCTAD (United Nations Conference on Trade and Development) (2023). World investment report 2023, https://unctad.org/system/files/official-document/wir2023_en.pdf google scholar
  • Vinh, N. T. (2019). The impact of foreign direct investment, human capital on labor productivity in Vietnam. International Journal of Economics and Finance, 11(5), 97. google scholar
  • Vuksic, G. (2016). Effects of private ownership, trade, and foreign direct investment on labor productivity growth in transition economies: Evidence from the Croatian manufacturing industry. Emerging Markets Finance and Trade, 52(2), 322-335. google scholar
  • Wooster, R. B., & Diebel, D. S. (2010). Productivity spillovers from foreign direct investment in developing countries: A meta-regression analysis. Review of Development Economics, 14(3), 640-655. google scholar
  • Yasar, M., & Morrison Paul, C. J. (2007). International linkages and productivity at the plant level: Foreign direct investment, exports, imports and licensing. Journal of International Economics, 71(2), 373-388. google scholar
  • Yeaple, S. (2003). The complex integration strategies of multinationals and cross-country dependencies in the structure of foreign direct investment. Journal of International Economics, 60(2), 293-314. google scholar
There are 50 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Articles
Authors

Aytuğ Sözüer 0000-0003-2680-2071

Publication Date December 26, 2023
Submission Date July 31, 2023
Published in Issue Year 2023 Issue: 95

Cite

APA Sözüer, A. (2023). Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye. Istanbul Management Journal(95), 12-21. https://doi.org/10.26650/imj.2023.95.1335148
AMA Sözüer A. Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye. Istanbul Management Journal. December 2023;(95):12-21. doi:10.26650/imj.2023.95.1335148
Chicago Sözüer, Aytuğ. “Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye”. Istanbul Management Journal, no. 95 (December 2023): 12-21. https://doi.org/10.26650/imj.2023.95.1335148.
EndNote Sözüer A (December 1, 2023) Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye. Istanbul Management Journal 95 12–21.
IEEE A. Sözüer, “Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye”, Istanbul Management Journal, no. 95, pp. 12–21, December 2023, doi: 10.26650/imj.2023.95.1335148.
ISNAD Sözüer, Aytuğ. “Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye”. Istanbul Management Journal 95 (December 2023), 12-21. https://doi.org/10.26650/imj.2023.95.1335148.
JAMA Sözüer A. Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye. Istanbul Management Journal. 2023;:12–21.
MLA Sözüer, Aytuğ. “Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye”. Istanbul Management Journal, no. 95, 2023, pp. 12-21, doi:10.26650/imj.2023.95.1335148.
Vancouver Sözüer A. Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye. Istanbul Management Journal. 2023(95):12-21.
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