FDI inflows spillover effect implications on the Asian‐Pacific labour productivity

• Published date: 01 January 2023
• Author: Elsadig Musa Ahmed,Rahim Kialashaki
• Date: 01 January 2023
• DOI: http://doi.org/10.1002/ijfe.2437

RESEARCH ARTICLE

FDI inflows spillover effect implications

on the Asian-Pacific labour productivity

Elsadig Musa Ahmed|Rahim Kialashaki

Faculty of Business, Multimedia

University, Melaka, Malaysia

Correspondence

Elsadig Musa Ahmed, Faculty of Business,

Multimedia University, Melaka, Malaysia.

Email: elsadig1965@gmail.com

Abstract

This study examines Foreign Direct Investment (FDI) inflows spillover effects

influence on the labour productivity of the most important Asian-Pacific coun-

tries (Malaysia, Indonesia, Singapore, Philippines, Thailand, China, Japan,

Korea, India, Australia and New Zealand). The modified-intensive growth the-

ory model that is based on labour productivity (out per worker) is employed.

Both growth accounting and econometric approaches are combined to esti-

mate input terms (explanatory variables) parameters in the first step followed

by the second step that plugs the estimated coefficients into the modified

model to calculate the productivity indicators. The results show that the FDI

inflows spillover effects are input-driven which was generally more predomi-

nant than total factor productivity (TFP) per worker (intensity) growth that is

expressed the combined contribution of inputs' qualities technological progress

or what so-called productivity-driven. TFP intensity growth results show that

most of the selected Asian-Pacific counters economic growth is considered to

be an input-driven and highly dependent on absorptive capacity per worker.

This indicates that the FDI spillover effects (absorptive capacity) have a signifi-

cant and low impact on these economies. However, the economies of Japan,

South Korea and China showed productivity-driven growth among Asian

countries under study. Besides, Australia and New Zealand showed

productivity-driven as resource-based economies. The technology transfers and

human capital skills development or what so-called FDI spillover effects con-

tribute significantly in the cases of Japan, South Korea, and China among the

Asian countries. For these countries to achieve the New Economic Model of

development to sustain its long-run economic growth, to be a high income and

knowledge-driven economy based on high-skilled human capital, the produc-

tivity must be given top priority.

KEYWORDS

labour productivity, Asian-Pacific, FDI spillover effect, input driven, productivity driven

JEL CLASSIFICATION

E23; C22

Received: 27 January 2020Revised: 15 December 2020Accepted: 20 December 2020

DOI: 10.1002/ijfe.2437

Int J Fin Econ. 2023;28:575–588. wileyonlinelibrary.com/journal/ijfe © 2021 John Wiley & Sons, Ltd.575