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# Skills

FDI tends to flow increasingly into higher-skilled activities<sup>2</sup> over lower-skilled activities. In the manufacturing sector, the global inflow of investment to higher-skilled activities from 2009 to 2011 was nearly 10 times larger per year than that of lower-skilled activities. Moreover, the skill bias of FDI seems to be accelerating over the years. The annual average between 1990 and 1992 was about five times larger, and between 2005 and 2007 about 14 times larger (Moran, Gorg and Seric, 2016).

Overall, while there exist stark differences in skill utilization across countries as revealed by the shares of skilled workers in the sample of Enterprise Surveys, the majority of foreign multinationals in most countries offer training in much greater numbers than domestic firms (see Fig. 3 and 4). In countries where services and high-tech manufacturing FDI take place, foreign multinationals rely much more on skilled workers for their activities. This would be the case of Poland, Indonesia or the Philippines, which have already significantly upgraded their industrial capabilities and expanded services FDI over the last decade. On the other hand, in Mexico, Ethiopia, Romania, or Vietnam, foreign multinationals employ significantly higher shares of unskilled employees in low-technology manufacturing, while in Nigeria and the Democratic Republic of Congo low skill intensity reflects concentration of foreign MNEs on natural resource sectors. All these are examples of markets where efficiency-seeking FDI or resource-seeking investment is taking place on a larger scale.

Training offers across firms also vary substantially across countries, although there seems to be a consistent premium in shares of foreign multinationals that offer it relative to their domestic competitors.

Whether these differences in skill utilization and transfer translate into substantial effects on the aggregate level of skills in the workforce depends not only on the volume of investment activity, but also on initial skills endowments. In fact, there may be a cyclical relationship between FDI types and skill endowments in the economy: certain skill endowments attract certain FDI types, and certain FDI types help develop certain skill endowments.

Evidence over a large number of years shows that FDI amplifies differences in initial skill - endowments between countries: in those that are relatively well endowed with skills, FDI enhances skill development by increasing enrollment in secondary and tertiary education relative to the sample average. However, in countries that are relatively poorly endowed with skills, FDI is more intensively directed towards low-skilled activities, creating a low-skill equilibrium or trap (Te Velde and Xenogiani, 2007).

> 2 In the manufacturing sector, lower-skilled activities are defined as: food, beverages and tobacco; textiles, clothing and leather; and wood and wood products. Higher-skilled activities are defined as publishing, printing and reproduction; coke, petroleum products and nuclear; chemicals and chemical products; rubber and plastic products; non-metallic mineral products; metals and metal products; electrical and electronic equipment; precision instruments; and motor vehicles and other transport (Moran, Gorg and Seric, 2016: 24).