Spillover Effect of the Foreign Direct Investment on Employment Level of the Service Sector in Iran

This study analyses one of the effects of the economic Globalization process, that is the inflow of foreign direct investment, on the employment of the sub-sectors of the service sector in Iran. For this purpose the impact of the gap between labor productivity in service sector of Iran and developed countries on the ratio of the skilled over unskilled labor (at the time of the multinational corporation entrance to the economy) is studied by using a panel data during the period of 1997-2004.The findings indicate that by entering the multinational corporations to the economy the active companies in various fields of service sector employ skilled labor which will lead to the greater labor productivity and consyuently the domestic companies can compete better with the foreign companies (spillover effect). The real-state, and small business activies have the first rank in emyloying the skilled labor and imyroving the ratio of skilled over unskilled labor.