Labour Productivity Spillovers From Foreign Direct Investment: Evidence From Malaysian Industry Level Panel Data by Labour Skills Composition

This study adds to the literature by examining both technology and knowledge spillover effects of foreign direct investment (FDI) according to skill composition and also by country spillovers in Malaysian medium-high industry, which raises the question of the real benefits produced by both spillovers that Malaysia can reap from the presence of FDI in enhancing the labour productivity. Using the seemingly unrelated regression (SUR) estimator to estimate labour productivity function by skill composition, the results reported that the presence of Japanese, Singaporean and the United States MNCs are statistically significant in influencing the productivity of high and medium-skilled workers from both technology and knowledge spillover effects during the period of 2000 to 2018. Conversely, the analysis indicated that both Chinese and Taiwanese MNCs significantly increase the low-skilled labour productivity. An interesting finding was discovered, that the negative association between knowledge spillovers and labour productivity across the skills draws the attention for the role of local firms as recipients of FDIs depends not only on their absorptive capacity but also on their strategic decisions regarding search direction and motivational disposition to absorb external knowledge. These issues need to be investigated further to understand how local firms may increase their chances of benefitting from MNC presence