The FDI - employment link in a globalizing world: The case of Argentina, Brazil and Mexico
This paper analyses the evolution and nature of foreign direct investment (FDI) inflows in Argentina, Brazil and Mexico and their impact on the labour market. Attracting FDI has been a key aspect of the countries’ outward-oriented development strategy, as FDI is seen as compensating scarce domestic financial resources that are needed to help modernize production and to facilitate integration into the world market. As such it is considered crucial for output growth and employment generation. The new outward-oriented development strategy of the 1990s and the increased globalization of production led to a boom in FDI. The impact of large FDI inflows on employment, however, was to a large extent disappointing. This unfavourable outcome is explained by the type of investment, which mostly came in the form of mergers and acquisitions, often as a consequence of the privatization of public utility companies or bank restructuring. As a result, few productive assets with additional employment potential were created. Overall, foreign direct investment was often associated with restructuring, implying rationalization measures and labour shedding. Only Mexico escaped the trend as a result of investment in the maquiladora sector, mainly of greenfield plants using labour-intensive production methods, leading to substantial job growth during 1995-2000, though since 2000 the sector has lost a significant amount of jobs. In Argentina and Brazil, FDI helped to modernize the economies, but without significantly contribution to formal employment creation.
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