Question

Why might a labor group support limitations on the outflow of FDI?

Answer 1

Recent studies focus mainly on the effects of the foreign direct investments on the economic growth.
Theoretical studies have revealed that the foreign direct investments have a positive influence on the gross
domestic product’s (GDP) growth of the host country. Sandalcilar and Altiner (2012) analyze the causal
relationship between the inflows of foreign direct investments and the gross domestic product, in the Economic
Cooperation Organization (ECO) region.
Based on the data available for the period 1980-2000, for 10 European countries, Herzer and Nunnenkamp
(2011) determined that the effects of the foreign direct investments on income inequality are different for the
long-term and for the short-term.
Thiam Hee Ng (2007) analyzes the relation between the direct investments and labor productivity in 14
countries of the sub-Saharan Africa, assuming that it is a direct connection. It is considered that an effect of theforeign direct investments is the increase of labor’s average productivity due to the introduction of new
production technologies and to the implementation of an efficient management. It is very important to quantify
these effects because of the involved costs, usually attracting foreign direct investments in the host country.
Wacker and Vadlamannati (2011) study the effects of the foreign direct investments on labor market
processes optimization. The results proving a labor standards’ abatement as a direct consequence of the
negotiation process between employers and employees.
It was discovered that in the emerging markets in order to attract foreign investments, strategies were
implemented` through various measures or facilities meant to provide a transparent and friendly business
environment for investors. In only a few cases, these strategies have been elaborated for the long-term,
managing to also take into account the risks of an eventual capital outflow for the real economy, for the
exchange rate, commercial and foreign payments balance (Georgescu, 2012).
The Eurostat data prove that both the inflows and outflows of foreign direct investments have increased in
the past few years in the countries of the European Union. The inward FDI stock has increased in the European
Union (27 countries) from 15,2% of the GDP in 2004 to 30,6% of the GDP in 2012. Consequently, the outward
FDI stock increased from 19% in 2004 to 40,3% of the GDP in 2012.
Among the factors that contributed to the foreign direct investments volume increase were the eagerness of
the groups of companies to internationalize their activity; the multinational corporations’ expansion; the
capital’s free movement promotion; the large volume of purchase and merger transactions, in order to maintain
market competitiveness; technological transfer, as well as existing differences regarding the efficiency and
structure of the regional markets.
An indicator that provides a rather clear picture of the labour output for a country's economy is the hourly
productivity. This being calculated based on the gross domestic product and the total number of worked hours
in the entire economy. This indicator eliminates the disadvantages that appear when using the indicator "labor
productivity per employee" in the comparison among countries.
In the European Union, the hourly labor productivity increased continuously from 27,9 euro per hour in
2000 to 32,1 euro per hour in 2012. In Romania, the growth was from 3euro per hour to 5,4 per hour. In 2012,
the lowest labor productivity was detected in Bulgaria (4,8 euro per hour) and the one in Luxembourg (58,2
euro per hour), the second highest being in Denmark (52,6 euro per hour).
The distribution of the European Union countries according to labor productivity per hour and to the volume
of foreign direct investments outflows proves a direct connection. For countries like Romania and Bulgaria,
where the level of labor productivity is very low, a decrease of the foreign direct investment outflows occurs.
Furthermore, in Ireland and Luxembourg where labor productivity exceeds 50 euro per hour, the volume of
foreign direct investments (FDI) outflows represents over 150% of gross domestic product (GDP).