Foreign Direct Investment, Firm-Level Capabilities and Human Capital Development: Evidence from Kenyan Manufacturing Industry
Geoffrey Gachino
#2006-014
This paper uses firm-level survey data of Kenyan manufacturing industry
to examine the significance of FDI and firm-level capabilities in human
capital development. It undertakes a detailed descriptive comparison of
human capital and other firm-level capabilities generated by both
foreign and locally owned firms. The analysis shows that foreign firms
generally enjoyed high human capital development and firm-level
capabilities than locally owned firms. Empirical evaluation of human
capital determinants revealed a statistically significant role played by
FDI in determining human capital development in all the firms. Other
factors which demonstrated an equally significant role included specific
firm level capabilities; process, product, marketing and export
performance. Interestingly, basic infrastructure, systemic embeddedness,
firm size, labour market conditions and the role of government were not
statistically significant, implying their weak role in human capital
stimulation. The choice of Kenyan manufacturing industry presents an
ideal case to evaluate FDI, firm-level capabilities and human capital
development for two main reasons. First, the Kenyan economy has
continued to witness low levels of economic growth despite having
literally lifted most industrial controls and protections since
introduction of structural adjustment programme from mid 1980s. Second,
although Kenya has low levels of FDI in general terms it has high levels
of foreign presence in selected industries. The Kenyan case is therefore
expected to offer important policy ramifications for other countries in
the sub Saharan region.
Keywords: FDI, human capital development, firm-level capabilities,
systemic embeddedness, basic infrastructure and Kenya.
JEL codes: C24, F21, F23, L6, O3.