F10. Employment

There is growing empirical evidence that OFDI promotes home-country employment and improves employment conditions, though some studies find that OFDI can reduce home-country employment under specific circumstances (for example when made in less advanced economies). A starting point for promotion of positive employment effects would be to reduce any regulatory hurdles on OFDI in those industries where there is potential for gains in home-country employment. Such regulatory easing could focus on relevant services sectors as well as in manufacturing, where employment gains from OFDI have been empirically detected.

The Toolkit suggests focusing on the services sector, market-seeking investments and OFDI to more advanced economies to promote employment effects. Financial support can be offered for services sector and market-seeking OFDI, and it is possible to target fiscal support at the services sector as well. In addition, investments in more advanced economies could be directly targeted, though in practice such investments are not regularly supported by HCMs.

Efforts should also be made to improve the transmission channels through which enhancements in home-country employment are facilitated. Focus should be on maximising scale and scope effects, which could induce expansions in home-country employment.

The employment gains are likely to accrue in the long term. Thus, financial support measures should have long durations, and efforts to maximise benefits from OFDI should be made with a long-term perspective. Operational support on the ground should also be offered to investments over long periods of time.

Key insights

• The enhancement of home-country employment can be promoted especially by targeting financial support measures at market-seeking and services sector OFDI. Such financial support measures should support OFDI over long periods of time.