Employment effects of foreign direct investment in the Turkish manufacturing industry

Abstract

This thesis studies the causal e§ects of foreign ownership on plant employment of varying degrees of FDI. I not only examine the employment e§ects of FDI ináows by using standard deÖnition of FDI as is standard in the literature, but I also look into the possible di§erentiale e§ects of di§erent levels of FDI and identify these e§ects at the 10, 25, 50, 75 and 100 percent foreign ownership in plants, respectively. These e§ects are tested using plant-level data from Annual Manufacturing Industry Statistics on the Turkish Manufacturing industry. To control for the possible selection-bias, a di§erence-in-di§erences approach is combined with propensity score matching. The advantage of this method is that it allows observing the divergence in the paths of employment between the treated plants and the matched control plants. It is shown that foreign acquisition in Turkish manufacturing industry leads to a signiÖcant increase in employment in the acquired plants when the standard deÖnition of FDI is used. The positive and statistically signiÖcant e§ects become visible in the acquisition year and continue in the subsequent periods. I Önd that after three years, the acquired plants outperform the control group in terms of employment by 21 percentage points. The signiÖcant positive employment e§ects are also observed when I only focus on the private establishments, excluding public establishments from the sample. The analysis also suggests that the positive employment e§ects occur together with increases in output and productivity. However, it is observed that as the dominance of foreign partners increases in foreign ownership percentages the employment e§ects of FDI ináows begin to decrease.