africa

Yale Center for the Study of Globalization
We asserted above that FDI in manufacturing generates more jobs than FDI in
extractive industries. Here we employ data from United States MNCs to back this
assertion. Specifically, we compare the employment effects of FDI in manufacturing
and extractive industries. For each industry, we compute the number of employees
per US$1 million stock of FDI of affiliates of U.S. MNCs abroad, and use that measure
as a proxy for the elasticity of job creation. Table 23.5 shows the employment
elasticity data for the world and various regions. A higher elasticity implies that FDI
generates more jobs. We also report the elasticity ratio, which we define as the ratio
of the elasticity for manufacturing to the elasticity for mining.
There are three notable points. First, the elasticity ratios are greater than one, suggesting
that, in all the regions, an equal investment in manufacturing and mining will
produce more jobs in manufacturing than in mining. For example the elasticity ratio
for Africa is 17, which means that for the same level of investment, the number of
jobs created in manufacturing will be about 17 times the number of jobs created in
mining. Second, Africa has the highest elasticity ratio, implying that the relative benefit
(in terms of job creation) of receiving FDI in manufacturing versus FDI in mining is
higher for Africa than for other regions. Third, Africa has the highest employment
elasticity in manufacturing: a US$1 million investment in manufacturing will create
about 34 jobs in SSA—this compares with 21 in Latin America, 15 in Asia, and
about 10 in Europe and the Middle East. This implies that in terms of employment
creation, FDI in manufacturing is more “productive” in Africa than in other regions.
This is clearly shown in Figure 23.3.
Table 23.5: Employees per US$1 Million of Foreign Direct Investment Stock
in US Foreign Affiliates Abroad, by Sector and Region
Mining Manufacturing Elasticity Ratio
Africa 2 34 17
Asia and Pacific 2 15 7.5
Europe 1 10 10
Latin America 2 22 11
Middle East 2 10 5
World 1 12 12
Source: Bureau of Economic Analysis, US Department of Commerce, and calculations by authors.
Notes: Data for Africa, Latin America, and Europe are for 2007, data for Asia and the World are for
2006, and data for the Middle East are for 2002. “Africa” includes Sub-Saharan Africa and North Africa.
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