A note on labour productivity and foreign inward direct investment

Foreign direct investment (FDI) is not only a transfer of capital, but a co mplex bundle of capital and firm-specific assets. In particular, the transf er of production know-how improves overall productivity of FDI-receiving fi rms and to some extent also that of the other firms due to spillovers. The present note uses a small panel of Austrian manufacturing sectors and inves tigates this hypothesis empirically. In a flexible CES-framework, general a nd labour-augmenting productivity improving effects of inward FDI are found . Thus, the job creation potential of FDI highlighted in previous studies i s likely to be overestimated.