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The Relation between Foreign Direct Investments (FDI) and Labour Productivity in the European Union Countries
Available online at www.sciencedirect.com
ScienceDirect Procedia Economics and Finance 32 (2015) 278 – 285
Emerging Markets Queries in Finance and Business
The relation between foreign direct investments (FDI) and labour productivity in the European Union countries Carmen Bogheana,*, Mihaela Statea a
University “Stefan cel Mare” of Suceava, Romania, Universitatii Street. No 13, 720229
Abstract The effects of foreign direct investments (FDI) on host countries’ economies are mainly related to the increase of labour productivity through technological transfer, management and marketing proficiency that enables long term technological progress and economic growth. When the quantitative growth of the production factors is more difficult to achieve through decision makers’ measures, countries can try to increase the qualitive level. The development of performing management skills according to the standards imposed by the major corporate leading systems, the increase of the population’s training level and its capacity to adapt to the technological developments can contribute to the increase of labour resources’ quality. In this paper, we analyze the relation between foreign direct investments and labour productivity in the E.U. countries, based on the data retrieved from the Eurostat website, for the 2000 – 2012 time periods. The data were processed using the SPSS computer program, through the correlation method.
© 2015 Authors. PublishedPublished by Elsevier B.V. This is an open under the CCthe BY-NC-ND license by Elsevier B.V. This is anaccess open article access article under CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/). (http://creativecommons.org/licenses/by-nc-nd/4.0/). Selection and and peer-review Emerging Markets Queries in Finance and Business local organization. under responsibility responsibilityof ofthe Asociatia Grupul Roman de Cercetari in Finante Corporatiste Selection peer-review under Keywords: foreign investors, incoming stoks, foreign direct investments, labour market;
1. Introduction Nowadays, the foreign direct investments are considered to be a constituent part of an open international economic system, as well as a major development catalyst. In recent years, these have become the most
*
Correspondent author: Tel.:+40-741-252-694. e-mail address: [email protected]
2212-5671 © 2015 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and peer-review under responsibility of Asociatia Grupul Roman de Cercetari in Finante Corporatiste doi:10.1016/S2212-5671(15)01392-1
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
important source of external finance for emerging countries and an important funding source for the developed countries (IMF, 2006). There are a many established definitions for the foreign direct investments, most of them being oriented towards establishing clear range delimitation. We consider necessary the concept’s defining, since the foreign direct investment is considered to be beneficial, from the host governments’ perspective, as they induce numerous and extensive positive effects. In this regard, host countries’ governments develop proactive measures in order to attract foreign direct investments, trying to continuously improve the macroeconomic situation, the business environment and the national legal framework so as to become more attractive as potential locations for foreign investors. The foreign direct investment consists in the acquisition of the control stock, through buying businesses or establishing new ones, abroad. The capital increase of a foreign subsidiary or a loan granted to the subsidiary by the parent enterprise also represents forms of foreign direct investment. (Boghean, 2013) Therefore, we can state that the foreign direct investment implies an internalized investment flow - within the same transnational corporation - that includes both capital assets as well as intangible assets. The investor maintains control of the subsidiary that he created and gets benefits out of his investment, in return for his assuming the operational risk of his firm. The firms no longer limit their activity to the import and export of goods and services, and rather consider appropriate to establish permanent undertakings in foreign countries. Firstly, cheaper production factors (especially labor) enable product’s completion according to the requirements of the current market. In the second phase, the local production replaces exports, but it may, usually, exist a third phase, one in which the goods produced in a foreign factory are exported to other countries in the region or even to the country of the parent enterprises. All these are just a few of the advantages of producing in other countries (Flower, 2002). Many firms from various fields achieve the integration of their activities on the horizontal, obtaining abroad types of goods differentiated from the ones produced in their home country. Other multinational firms carry out foreign capital direct investment aiming at gaining control of basic raw materials or intermediate products, therefore accomplishing an uninterrupted chain of processes and procedures that enables them to reduce the production and marketing costs. This represents a vertical integration of the firm’s activities, a form of foreign direct investment, frequently used in the relations of the developed countries with the emergent countries. The main reasons for making foreign direct investments are: the achievement of higher revenues than in the home country or the possibility to benefit from relatively more gain favorable conditions compared to those of the home country, the principle of capital investments’ diversification, risk reduction, as well as others. It is already acknowledged that companies that are highly international oriented either towards their marketing or towards their manufacturing and research-development activities, are more profitable and record a greater stability of the profits’ size than the firms that do not conduct this type of international activities (Salvatore, 2007). The modalities of accomplishing international investments lead to the setting up of a typology based on the relation established between the issuer and the receiver of the investment. Thus, the investment is generally considered to be a direct one if it involves the transfer of control and decision making from the issuing agent to the receiver’s activity and portfolio investments which entails not such a report. Basically, foreign direct investments differ from portfolio investments through the possibility of exercising control over the investments and the keywords, that differentiate the two, are control and long-term interest of the issuer in the receptor, these being present in the foreign direct investments, but not in the portfolio investments. The foreign direct investment is characterized by several basic defining criteria: • the direct investment represents a capital investment abroad, on a long term, and it can not be associated with several punctual transactions, restrictive, immediate, as things happen in the international goods’ trade;
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Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
• most of the times, this investment aims at establishing a new economic objective or the purchasing of the assets of existing enterprises; • generally, the direct investment materializes in a transfer of machinery, installations, equipment, measuring apparatus, that contributes to the increase of fixed capital in operation, know-how in the field of management and marketing; • most of this transfer of resources represent the real capital (productive), that allows the investing firm to obtain the entitlement to control, totally or partially, respectively the right to participate in decisionmaking, when its share exceeds 10% of the total assets; • the internal structure of the direct investment comprises the net contribution to the capital, the profits obtained in the abroad subsidiaries and were reinvested, and loans made on the local or international capital market; • the most important characteristic and also the effective force of the foreign direct capital investment consists in the possibility of the investing firm to influence decisions, but especially in its participation in the effective management of the company, subsidiary or branch located on the territory of another state, where the investor has a long term interest. Through upstream and downstream connections, the foreign direct investments may encourage the creation of local enterprises that can resort to foreign portfolio investments in order to finance their expansion. Though, the massive capital flows brought to by the foreign direct investments may have an impact on the real exchange rate, it is commonly considered that the foreign direct investments flows are compensated by the imports of the equipment and components necessary to unreel the production by transnational corporations’ subsidiaries, that reduces the impact on exchange rates. However, the outflows in the form of remittances of dividends and of transfer prices can exert considerable pressure on the balance of payments and the massive loans of the transnational corporations’ subsidiaries, locally, leads to the risk of eliminating local firms from the capital market of the host country. Meanwhile, the foreign direct investments can also have a significant impact on the microeconomic level, being in a position to alter the productive structure of the host country. (HorobeĠ, 2005). In economic research, from a quantitative perspective, the foreign investments are expressed by two correlated indicators, namely the foreign direct investment flows and the foreign direct investment stocks. The investment flows can be either incoming - inflows (the investments made in one country or group of countries by nonresident companies or investors) or outgoing - outflows (the investments made in other countries by resident companies or investors). The foreign direct investments stock can consist of the foreign direct investments incoming stocks - inward FDI stock (the value of the capital and of the reserves from the economy that pertain to investing companies residing in other countries), and the foreign direct investments outgoing stocks - outward FDI stock (the value of the capital and of the reserves located in other countries and pertaining to the investing companies residing in the country of reference). 2. The connection between foreign direct investments and labour productivity 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 the
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
foreign 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).
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Fig. 1. The EU countries’ distribution according to the Outward FDI stocks and to labour productivity in 2012 (without Croatia, because of unavailable data) Source: proper elaboration based on the Eurostat data
The connection’s strength measured using the Spearman coefficient indicates the presence of a strong connection among the EU countries, grouped according to the two variables, for the year 2012. Table 1. Correlations between Labour productivity per hour worked and Outward FDI stocks
Spearman's rho
Labour productivity per hour worked
Outward FDI Stocks in % of GDP
1,000
0,935** 0,000
Labour productivity
Correlation Coefficient
per hour worked
Sig. (2-tailed)
.
N
27
Outward fdi stocks
Correlation Coefficient
0,935
27 **
1,000
Sig. (2-tailed)
0,000
.
N
27
27
**. Correlation is significant at the 0.01 level (2-tailed). Source: proper calculations using the SPSS computer program
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
Concerning the distribution of the European Union countries, according to the foreign direct investments inflows and to labour productivity, we can conclude that there exists a connection between the variables analyzed at the level of the EU countries in 2012.
Fig. 2. The European Union countries’ distribution according to the inward FDI stocks and to labour productivity in 2012 (without Croatia, because of unavailable data) Source: proper elaboration based on the Eurostat data
If we take into consideration only the EU countries that score an hourly productivity of over 30 Euros per hour, we can state that there is a connection between the foreign direct investments inflows and hourly productivity. The calculated Spearman coefficient r = 0,730, statistically significant (the associated Sig value being 0.005), proves a strong connection occurring in these countries. According to the data in the Annex, we can observe that this case appears in countries such as: Luxembourg, Ireland, Belgium, Denmark, Sweden, etc., that have high values of the gross domestic product, more than 24000 Purchasing Power Standard (PPS) per inhabitant. The results obtained from the analysis of the connection between the foreign direct investments inflows and hourly labor productivity in the EU countries, from 2001 to 2012, based on the Spearman coefficient, were centralized in Table 2.
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Table 2. The Spearman correlation coefficient and the Sig value
NO.
COUNTRIES
SPEARMAN COEFFICIENT
SIG.
NO
COUNTRIE S
SPEARMAN COEFFICIENT
SIG.
1
Bulgaria
0,916
0
14
2
Czech Republic
0,873
0
15
Hungary
0,685
0,014
Malta
-0,081
0,803
3
Denmark
0,43
0,163
16
Netherlands
0,849
0
4
Germany
0,881
0
17
Austria
0,827
0,002
5
Estonia
0,719
0,008
18
Poland
0,965
0
6
Ireland
0,294
0,354
19
Portugal
0,965
0
7
Greece
0,657
0,02
20
Romania
0,73
0,017
8
Spain
0,993
0
21
Slovenia
0,986
0
9
France
0,848
0
22
Slovakia
0,911
0
10
Italy
0,363
0,245
23
Finland
0,77
0,03
11
Latvia
0,872
0
23
Sweden
0,697
0,012
12
Lithuania
0,888
0
25
United Kingdom
0,582
0,047
13
Luxembourg
-0,591
0,056
Source: proper calculations using the SPSS computer program
The coefficients’ values prove that there is a direct and very strong connection between the foreign direct investments inflows’ volume and the average labor productivity for the period 2001-2012, for the countries: Bulgaria, Czech Republic, Germany, Estonia, Greece, Spain, Poland, Portugal, Slovenia and Slovakia. For Romania, the calculated Spearman coefficient (r = 0,73) proves that the connection is direct and significant, the associated Sig value being smaller than 0,05. For Luxembourg, the coefficient is negative, this indicating a reverse but insignificant connection (the associated Sig. value being the larger than 0,05). The connection is insignificant for Denmark, Ireland, Italy and Malta.
3. Conclusions
The analysis of the connection between foreign direct investments and hourly productivity, based on the data available in 2012 for the countries of the European Union highlighted the existence of a strong connection between the volume of foreign direct investments outflows and productivity zones. At the same time, it can be noticed the absence of a connection between foreign direct investments inflows and average labor productivity. The existence of a connection between the foreign direct investments inflows volume and the hourly productivity, based on the data exiting in the year 2012, is confirmed only for the countries that have over than a certain amount of gross domestic product per capita. We might say that this is the case for the developed countries that have elaborated policies of attracting foreign direct investments. After calculating the Spearman correlation coefficients, based on the data existing at the level of the European Union countries for the period 2001-2012, values that indicate direct and strong connections between the foreign direct investments inflows and average labor productivity were obtained, for countries such as: Bulgaria, Czech Republic, Germany, Estonia, Greece, Spain, Poland, Portugal, Slovenia and Slovakia. For Romania, the obtained Spearman coefficient proves that the connection is direct, strong and significant.
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
Acknowledgements This paper has been financially supported within the project entitled „SOCERT. Knowledge society, dynamism through research”, contract number POSDRU/159/1.5/S/132406. This project is co-financed by European Social Fund through Sectorial Operational Programme for Human Resources Development 20072013. Investing in people!”
References IMF, 2006, Balance of Payments Manual, Fifth Edition, Washington, D.C., p. 234. Boghean, C., 2013, Globalizarea pieĠelor de capital, Editura Didactică úi Pedagogică R.A., Bucureúti; p.21. Flower, J., 2002, Global Financial Reporting, Palgrave Publishers Ltd., New York, p.9. Salvatore, D., 2007, International Economics, apud Postelnicu, C., Adina Rus, Coordonate ale Economiei InternaĠionale, Editura Casa CărĠii de ùtiinĠă, Cluj-Napoca; p.80. HorobeĠ, A., 2005, Managementul riscului în investiĠiile internaĠionale, Editura All Beck, Bucureúti, p.46. Sandalcilar, A. R., Altiner, A., 2012 Foreign Direct Investment and Gross Domestic Product: An Application on ECO Region (1995-2011), International Journal of Business and Social Science Vol. 3 No. 22 [Special Issue – November 2012]. Herzer, D., Nunnenkamp, P., 2011, Inward and Outward FDI and Income Inequality: Evidence from Europe, Kiel Institute for the World Economy, Kiel Working Paper No. 1675, https://www.ifw-members.ifw-kiel.de/publications/inward-and-outward-fdi-and-incomeinequality-evidence-from-europe. Thiam, Hee, Ng, 2007, Foreign direct investment and productivity: Evidence from sub-Saharan Africa, United Nations Industrial Development Organization, Research and Statistics Branch. Wacker, K.M., Vadlamannati, K.C., 2011, Do Multinationals Influence Labor Standards? A Close Look at US Outward FDI, CRC-PEG Discussion Papers, No. 98, http://www2.vwl.wiso.uni-goettingen.de/courant-papers/CRC-PEG_DP_98.pdf. Georgescu, G., 2012, The FDI flows under the global crisis effects, Munich Personal RePEc Archive, MPRA Paper No. 40842, http://mpra.ub.uni-muenchen.de/40842/1/The_FDI_flows_under_the_global_crisis_effects.pdf..
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ScienceDirect Procedia Economics and Finance 32 (2015) 278 – 285
Emerging Markets Queries in Finance and Business
The relation between foreign direct investments (FDI) and labour productivity in the European Union countries Carmen Bogheana,*, Mihaela Statea a
University “Stefan cel Mare” of Suceava, Romania, Universitatii Street. No 13, 720229
Abstract The effects of foreign direct investments (FDI) on host countries’ economies are mainly related to the increase of labour productivity through technological transfer, management and marketing proficiency that enables long term technological progress and economic growth. When the quantitative growth of the production factors is more difficult to achieve through decision makers’ measures, countries can try to increase the qualitive level. The development of performing management skills according to the standards imposed by the major corporate leading systems, the increase of the population’s training level and its capacity to adapt to the technological developments can contribute to the increase of labour resources’ quality. In this paper, we analyze the relation between foreign direct investments and labour productivity in the E.U. countries, based on the data retrieved from the Eurostat website, for the 2000 – 2012 time periods. The data were processed using the SPSS computer program, through the correlation method.
© 2015 Authors. PublishedPublished by Elsevier B.V. This is an open under the CCthe BY-NC-ND license by Elsevier B.V. This is anaccess open article access article under CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/). (http://creativecommons.org/licenses/by-nc-nd/4.0/). Selection and and peer-review Emerging Markets Queries in Finance and Business local organization. under responsibility responsibilityof ofthe Asociatia Grupul Roman de Cercetari in Finante Corporatiste Selection peer-review under Keywords: foreign investors, incoming stoks, foreign direct investments, labour market;
1. Introduction Nowadays, the foreign direct investments are considered to be a constituent part of an open international economic system, as well as a major development catalyst. In recent years, these have become the most
*
Correspondent author: Tel.:+40-741-252-694. e-mail address: [email protected]
2212-5671 © 2015 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and peer-review under responsibility of Asociatia Grupul Roman de Cercetari in Finante Corporatiste doi:10.1016/S2212-5671(15)01392-1
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
important source of external finance for emerging countries and an important funding source for the developed countries (IMF, 2006). There are a many established definitions for the foreign direct investments, most of them being oriented towards establishing clear range delimitation. We consider necessary the concept’s defining, since the foreign direct investment is considered to be beneficial, from the host governments’ perspective, as they induce numerous and extensive positive effects. In this regard, host countries’ governments develop proactive measures in order to attract foreign direct investments, trying to continuously improve the macroeconomic situation, the business environment and the national legal framework so as to become more attractive as potential locations for foreign investors. The foreign direct investment consists in the acquisition of the control stock, through buying businesses or establishing new ones, abroad. The capital increase of a foreign subsidiary or a loan granted to the subsidiary by the parent enterprise also represents forms of foreign direct investment. (Boghean, 2013) Therefore, we can state that the foreign direct investment implies an internalized investment flow - within the same transnational corporation - that includes both capital assets as well as intangible assets. The investor maintains control of the subsidiary that he created and gets benefits out of his investment, in return for his assuming the operational risk of his firm. The firms no longer limit their activity to the import and export of goods and services, and rather consider appropriate to establish permanent undertakings in foreign countries. Firstly, cheaper production factors (especially labor) enable product’s completion according to the requirements of the current market. In the second phase, the local production replaces exports, but it may, usually, exist a third phase, one in which the goods produced in a foreign factory are exported to other countries in the region or even to the country of the parent enterprises. All these are just a few of the advantages of producing in other countries (Flower, 2002). Many firms from various fields achieve the integration of their activities on the horizontal, obtaining abroad types of goods differentiated from the ones produced in their home country. Other multinational firms carry out foreign capital direct investment aiming at gaining control of basic raw materials or intermediate products, therefore accomplishing an uninterrupted chain of processes and procedures that enables them to reduce the production and marketing costs. This represents a vertical integration of the firm’s activities, a form of foreign direct investment, frequently used in the relations of the developed countries with the emergent countries. The main reasons for making foreign direct investments are: the achievement of higher revenues than in the home country or the possibility to benefit from relatively more gain favorable conditions compared to those of the home country, the principle of capital investments’ diversification, risk reduction, as well as others. It is already acknowledged that companies that are highly international oriented either towards their marketing or towards their manufacturing and research-development activities, are more profitable and record a greater stability of the profits’ size than the firms that do not conduct this type of international activities (Salvatore, 2007). The modalities of accomplishing international investments lead to the setting up of a typology based on the relation established between the issuer and the receiver of the investment. Thus, the investment is generally considered to be a direct one if it involves the transfer of control and decision making from the issuing agent to the receiver’s activity and portfolio investments which entails not such a report. Basically, foreign direct investments differ from portfolio investments through the possibility of exercising control over the investments and the keywords, that differentiate the two, are control and long-term interest of the issuer in the receptor, these being present in the foreign direct investments, but not in the portfolio investments. The foreign direct investment is characterized by several basic defining criteria: • the direct investment represents a capital investment abroad, on a long term, and it can not be associated with several punctual transactions, restrictive, immediate, as things happen in the international goods’ trade;
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• most of the times, this investment aims at establishing a new economic objective or the purchasing of the assets of existing enterprises; • generally, the direct investment materializes in a transfer of machinery, installations, equipment, measuring apparatus, that contributes to the increase of fixed capital in operation, know-how in the field of management and marketing; • most of this transfer of resources represent the real capital (productive), that allows the investing firm to obtain the entitlement to control, totally or partially, respectively the right to participate in decisionmaking, when its share exceeds 10% of the total assets; • the internal structure of the direct investment comprises the net contribution to the capital, the profits obtained in the abroad subsidiaries and were reinvested, and loans made on the local or international capital market; • the most important characteristic and also the effective force of the foreign direct capital investment consists in the possibility of the investing firm to influence decisions, but especially in its participation in the effective management of the company, subsidiary or branch located on the territory of another state, where the investor has a long term interest. Through upstream and downstream connections, the foreign direct investments may encourage the creation of local enterprises that can resort to foreign portfolio investments in order to finance their expansion. Though, the massive capital flows brought to by the foreign direct investments may have an impact on the real exchange rate, it is commonly considered that the foreign direct investments flows are compensated by the imports of the equipment and components necessary to unreel the production by transnational corporations’ subsidiaries, that reduces the impact on exchange rates. However, the outflows in the form of remittances of dividends and of transfer prices can exert considerable pressure on the balance of payments and the massive loans of the transnational corporations’ subsidiaries, locally, leads to the risk of eliminating local firms from the capital market of the host country. Meanwhile, the foreign direct investments can also have a significant impact on the microeconomic level, being in a position to alter the productive structure of the host country. (HorobeĠ, 2005). In economic research, from a quantitative perspective, the foreign investments are expressed by two correlated indicators, namely the foreign direct investment flows and the foreign direct investment stocks. The investment flows can be either incoming - inflows (the investments made in one country or group of countries by nonresident companies or investors) or outgoing - outflows (the investments made in other countries by resident companies or investors). The foreign direct investments stock can consist of the foreign direct investments incoming stocks - inward FDI stock (the value of the capital and of the reserves from the economy that pertain to investing companies residing in other countries), and the foreign direct investments outgoing stocks - outward FDI stock (the value of the capital and of the reserves located in other countries and pertaining to the investing companies residing in the country of reference). 2. The connection between foreign direct investments and labour productivity 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 the
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
foreign 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).
281
282
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
Fig. 1. The EU countries’ distribution according to the Outward FDI stocks and to labour productivity in 2012 (without Croatia, because of unavailable data) Source: proper elaboration based on the Eurostat data
The connection’s strength measured using the Spearman coefficient indicates the presence of a strong connection among the EU countries, grouped according to the two variables, for the year 2012. Table 1. Correlations between Labour productivity per hour worked and Outward FDI stocks
Spearman's rho
Labour productivity per hour worked
Outward FDI Stocks in % of GDP
1,000
0,935** 0,000
Labour productivity
Correlation Coefficient
per hour worked
Sig. (2-tailed)
.
N
27
Outward fdi stocks
Correlation Coefficient
0,935
27 **
1,000
Sig. (2-tailed)
0,000
.
N
27
27
**. Correlation is significant at the 0.01 level (2-tailed). Source: proper calculations using the SPSS computer program
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
Concerning the distribution of the European Union countries, according to the foreign direct investments inflows and to labour productivity, we can conclude that there exists a connection between the variables analyzed at the level of the EU countries in 2012.
Fig. 2. The European Union countries’ distribution according to the inward FDI stocks and to labour productivity in 2012 (without Croatia, because of unavailable data) Source: proper elaboration based on the Eurostat data
If we take into consideration only the EU countries that score an hourly productivity of over 30 Euros per hour, we can state that there is a connection between the foreign direct investments inflows and hourly productivity. The calculated Spearman coefficient r = 0,730, statistically significant (the associated Sig value being 0.005), proves a strong connection occurring in these countries. According to the data in the Annex, we can observe that this case appears in countries such as: Luxembourg, Ireland, Belgium, Denmark, Sweden, etc., that have high values of the gross domestic product, more than 24000 Purchasing Power Standard (PPS) per inhabitant. The results obtained from the analysis of the connection between the foreign direct investments inflows and hourly labor productivity in the EU countries, from 2001 to 2012, based on the Spearman coefficient, were centralized in Table 2.
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Table 2. The Spearman correlation coefficient and the Sig value
NO.
COUNTRIES
SPEARMAN COEFFICIENT
SIG.
NO
COUNTRIE S
SPEARMAN COEFFICIENT
SIG.
1
Bulgaria
0,916
0
14
2
Czech Republic
0,873
0
15
Hungary
0,685
0,014
Malta
-0,081
0,803
3
Denmark
0,43
0,163
16
Netherlands
0,849
0
4
Germany
0,881
0
17
Austria
0,827
0,002
5
Estonia
0,719
0,008
18
Poland
0,965
0
6
Ireland
0,294
0,354
19
Portugal
0,965
0
7
Greece
0,657
0,02
20
Romania
0,73
0,017
8
Spain
0,993
0
21
Slovenia
0,986
0
9
France
0,848
0
22
Slovakia
0,911
0
10
Italy
0,363
0,245
23
Finland
0,77
0,03
11
Latvia
0,872
0
23
Sweden
0,697
0,012
12
Lithuania
0,888
0
25
United Kingdom
0,582
0,047
13
Luxembourg
-0,591
0,056
Source: proper calculations using the SPSS computer program
The coefficients’ values prove that there is a direct and very strong connection between the foreign direct investments inflows’ volume and the average labor productivity for the period 2001-2012, for the countries: Bulgaria, Czech Republic, Germany, Estonia, Greece, Spain, Poland, Portugal, Slovenia and Slovakia. For Romania, the calculated Spearman coefficient (r = 0,73) proves that the connection is direct and significant, the associated Sig value being smaller than 0,05. For Luxembourg, the coefficient is negative, this indicating a reverse but insignificant connection (the associated Sig. value being the larger than 0,05). The connection is insignificant for Denmark, Ireland, Italy and Malta.
3. Conclusions
The analysis of the connection between foreign direct investments and hourly productivity, based on the data available in 2012 for the countries of the European Union highlighted the existence of a strong connection between the volume of foreign direct investments outflows and productivity zones. At the same time, it can be noticed the absence of a connection between foreign direct investments inflows and average labor productivity. The existence of a connection between the foreign direct investments inflows volume and the hourly productivity, based on the data exiting in the year 2012, is confirmed only for the countries that have over than a certain amount of gross domestic product per capita. We might say that this is the case for the developed countries that have elaborated policies of attracting foreign direct investments. After calculating the Spearman correlation coefficients, based on the data existing at the level of the European Union countries for the period 2001-2012, values that indicate direct and strong connections between the foreign direct investments inflows and average labor productivity were obtained, for countries such as: Bulgaria, Czech Republic, Germany, Estonia, Greece, Spain, Poland, Portugal, Slovenia and Slovakia. For Romania, the obtained Spearman coefficient proves that the connection is direct, strong and significant.
Carmen Boghean and Mihaela State / Procedia Economics and Finance 32 (2015) 278 – 285
Acknowledgements This paper has been financially supported within the project entitled „SOCERT. Knowledge society, dynamism through research”, contract number POSDRU/159/1.5/S/132406. This project is co-financed by European Social Fund through Sectorial Operational Programme for Human Resources Development 20072013. Investing in people!”
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