The impact of the movement of labor between FDI and domestic firms on the labor productivity of domestic firms

Abstract

The presence of foreign direct investment (FDI) firms generates a two-way labor movement, but most studies have only focused on one-way movement by examining either the movement from FDI firms to domestic firms or the movement from domestic firms to FDI firms. Therefore, this paper examines the impact of the two-way labor movement between FDI and domestic firms on the productivity of domestic firms in the case of Czechia from 2005 to 2019. By using system Generalized Moment Method (SGMM), we identify the positive impact of labor movement from FDI to domestic firms (labor horizontal) and vertical spillovers (labor backward and competition backward). However, we find that the movement from domestic firms to FDI firms does not have an impact on domestic firms. Nevertheless, the labor movement from domestic firms to FDI firms can enhance the positive impact of labor backward and competition backward on the productivity of domestic firms.