Globalization, FDI and employment in Viet Nam

Globalization,FDIandemploymentinVietNamRhysJenkins*ThearticleconsiderstheimpactofforeigndirectinvestmentonemploymentinVietNam,acountrythatreceivedconsiderableinflowsofforeigncapitalinthe1990saspartofitsincreasedintegrationwiththeglobaleconomy.Despitethesignificantshareofforeignfirmsinindustrialoutputandexports,thedirectemploymentgeneratedhasbeenverylimitedbecauseofthehighlabourproductivityandlowratioofvalueaddedtooutputofmuchofthisinvestment.Thearticlealsoshowsthattheindirectemploymenteffectshavebeenminimalandpossiblyevennegativebecauseofthelimitedlinkageswhichforeigninvestorscreateandthepossibilityof“crowdingout”ofdomesticinvestment.Keywords:foreigndirectinvestment;employment;VietNam;manufacturing;capital-intensityIntroductionTheimpactofglobalizationonemploymentisacentralissueofcontemporarypoliticaleconomy.Fromthepointofviewofworkersindevelopedcountries,globalizationisoftenseenasathreatastraditionalindustrialjobsdisappearorarerelocatedaroundtheglobe(andnotjusttraditionaljobs,astherecentexpansionofcallcentresinIndiaandelsewhereillustrates).Ontheotherhand,increasedemploymentindevelopingcountriesisseenasamajorcontributiontoreducingpovertyandmeetingtheMillenniumDevelopmentGoals.However,theimpactofglobalizationonlabourmarketsandthemechanismsthroughwhichcloserintegrationwiththeglobaleconomymayleadtojobcreationarestillasubjectofdebate.1*RhysJenkinsisaProfessorinDevelopmentStudiesattheUniversityofEastAnglia,Norwich,UnitedKingdom.TheresearchonwhichthisarticleisbasedwasfundedaspartoftheDfIDCSSRprojecton“Globalisation,ProductionandPoverty:Macro,MesoandMicroLevelStudies”oftheGlobalisationandPovertyresearchprogramme.Theviewsandopinionsexpressedarethoseoftheauthoralone.Contact:[e-mail]1Forarecentreviewoftheliteratureontheimpactofglobalizationonworkersindevelopingcountries,seeRama(2003).116TransnationalCorporations,Vol.15,No.1(April2006)Thereareavarietyofwaysinwhichglobalizationaffectslabour:themostimportantonesarethroughincreasedtrade,foreigndirectinvestment(FDI)andinternationaltechnologytransfer.EmpiricalresearchhasgivenmuchmoreattentiontotheeffectsoftradeonlabourmarketsthantotheimpactsofFDI.2Thispartlyreflectsthefactthat,whiletherearefairlywellestablishedmethodologiesforanalysingtheimpactoftradeonemploymentandtradedataisrelativelyeasilyavailable,theanalysisofFDIismoreproblematic.WhileemploymentcreationisregardedbygovernmentsasanimportantpotentialcontributionthatFDIcanmaketotheireconomies,mostanalysesofthelabourmarketeffectsofFDIidentifybothpositiveandnegativepotentialeffects.Table1illustratesthemaintypesofeffectsthatcanarise.LookingprimarilyattheeffectsofFDIonthelevelofemployment,itispossibletoidentifycircumstancesunderwhichithasasignificantpositiveimpact.Wheresuchinvestmentsupplementsdomesticinvestmentandinvolvesthecreationofnew“greenfield”plants,demandforlabourwilltendtoincrease.IfthisFDIisconcentratedinlabour-intensiveindustries,thisincreasewillbesubstantial.FDIcanalsoleadtoincreasedemploymentamongstlocalfirmsasaresultofbackwardorforwardlinkagessothatthedirectemploymentbyforeignaffiliatesmayunderestimatethetotalimpact.Theremayalsobespilloverstodomesticfirmsasaresultoftrainingbyforeigninvestorsortechnologytransfer.Foreignfirmsthataresubjecttopressuresintheirhomecountriesmayalsobringwiththemhigherlabourstandardsandwagesthanthenormforthehosteconomy.Whereafirmmakesalong-termcommitment,itcanprovidestableemployment.2ThisisreflectedinasurveyoftheeffectsoftradeandFDIonemploymentandwagesbyBaldwin(1995)inwhichmostofthestudiesdiscusseddealwithtradeeffects.Reviewingstudiesthatspecificallyfocusondevelopingcountries,Sen(2002,p.24)commentsthat“incontrasttotheexistenceofseveralstudiesthatexaminetheimpactofinternationaltradeonthelabourmarketsofdevelopingcountries,thereareveryfewstudiesthatdosoforforeigndirectinvestment.”117TransnationalCorporations,Vol.15,No.1(April2006)AddstonetcapitalandcreatesjobsinexpandingindustriesAcquisitionsmayresultinrationalizationandjoblossesCreatesjobsthroughforwardandbackwardlinkagesandmultipliereffectsinlocaleconomyRelianceonimportsordisplacementofexistingfirmsresultsinjoblossQuantityQualityLocationPayshigherwagesandhashigherproductivityIntroducespracticesine.g.hiringandpromotionthatareconsideredundesirableSpilloverof“bestpractice”workorganizationtodomesticfirmsErodeswagelevelsasdomesticfirmstrytocompeteAddsnewandperhapsbetterjobsinareaswithhighunem-ploymentCrowdsalreadycongestedurbanareasandworsensregionalimbalancesEncouragesmigrationofsupplierfirmstoareaswithavailablerlaboursupplyDisplaceslocalproducers,addingtoregionalunemployment,ifforeignaffiliatessubstituteforlocalproductionorrelyonimportsTable1.TherangeofpotentialeffectsofinwardFDIonthequantity,qualityandlocationofemploymentDirectIndirectPositiveNegativePositiveNegativeSource:UNCTAD1994,tableIV.1.However,itisalsopossibleforFDItohaveverylittle(orevennegative)effectsonemployment.Itmaydisplacelocalinvestment,sothattheneteffectonjobsislowerthanthenumberdirectlyemployedbyforeignaffiliates.WhereFDIinvolvestheacquisitionoflocalfirmsrather