The Spillover Effect of Direct Foreign Investment (utility gap) on Employment in Iran's Factory Industries

The role of direct external investment in employment in the host country is twofold: first, with the enterance of multi-nationality corporations into the country, due to the high utility of these corporations, the damand for skilled labor forces in that country will increase. Second is the spillover effect. That is, compared to the local corporations, multi-nationality ones have higher benefits. Thus, trying to narrow the existing gap, the local corporations tend to compete the foreign factories. Achieving this which needs employing similar foreign technology and skilled labor force will lead to the spillover effect of foreign corporations on local ones. In this research, the spillover effect of direct foreign investment on factory industries was tested using factory industries data (segmented into two-digit groups ISIC) of the period 1997-2004 with the help of panel data combination method. Results showed that, in contrast with other industries, the spillover effect of direct foreign investment on oil-related industries will emerge in form of increase in demand for skilled labor forces.