The Relationship Between Labor Productivity, Exports, and Foreign Direct Investment for Transition EconomiesMehmet Akyol, Emrullah Mete
Due to the scarcity of global resources and the fact that technological developments do not occur in every country, productivity has become an important instrument of economic development for many countries. It is generally accepted that an increase in labor productivity stimulates a country’s macroeconomic performance in terms of its exports, foreign direct investment (FDI), and economic growth. In this study, we examine the relationship between labor productivity, exports, and FDI for transition economies over the period from 2005 to 2019, using a Dumitrescu–Hurlin panel causality analysis. The study’s findings indicate that while a causal relationship between labor productivity and exports cannot be determined, there is one-way causality from labor productivity to FDI. The results of the analysis suggest that labor productivity is the cause of increased FDI in these countries.
İşgücü Verimliliği, İhracat ve Doğrudan Yabancı Yatırımlar İlişkisi: Geçiş Ekonomileri ÖrneğiMehmet Akyol, Emrullah Mete
Günümüzde kaynakların kıt olması ve teknolojik gelişmelerin her ülkede gerçekleşmemesi nedeniyle verimlilik ülkeler için ekonomik gelişmeyi sağlayan önemli bir enstrüman olmuştur. Genel olarak işgücü verimliliğindeki artışın ülkeler için ihracat, doğrudan yabancı yatırımlar ve ekonomik büyüme gibi makro ekonomik enstrümanları harekete geçirdiği kabul edilmektedir. Bu çalışmada iş gücü verimliliği ile ihracat ve doğrudan yabancı yatırımlar arasındaki ilişki geçiş ekonomileri ülkeleri için 2005-2019 döneminde incelenmiştir. Dumitrescu ve Hurlin panel nedensellik analizinin kullanıldığı çalışmada, işgücü verimliliği ile ihracat arasında bir nedensellik ilişkisi tespit edilemezken, işgücü verimliliğinden doğrudan yabancı yatırımlara doğru tek yönlü bir nedensellik ilişkisi tespit edilmiştir. Analiz sonuçları söz konusu ülkelerde işgücü verimliliğinin doğrudan yabancı yatırımların nedeni olduğunu ifade etmektedir.
It has become increasingly challenging for many countries to compete in international markets and ensure sustainable economic growth. The scarcity of economic resources and technological insufficiencies lead these countries to seek different solutions to achieve sustainable economic growth, such as improving efficiency in using their existing resources and increasing factor productivity. A factor efficiency analysis reveals the efficiency levels of the factors of production used in any product manufactured in a given economy and is obtained by proportioning the factors used as the product emerges. The concept of productivity is the subject of research across the economic literature, from Mercantilist theory to endogenous growth theories. Productivity, measured in terms of total factor productivity (TFP) and partial factor productivity (PFP), is an essential element of economic growth and has been an accepted instrument in measuring development levels among countries. While TFP refers to all production factors, including technology entering the production process, PFP generally refers to labor productivity.
Labor productivity is an important indicator of a country’s social development, primarily because it directly affects wages and living standards. This study investigates the relationship between labor productivity, exports, and foreign direct investment (FDI). An increase in labor productivity may result in more products being created with fewer or existing resources or in creating products with high added value. Exports contribute to economic growth and development by providing foreign currency inflows to the exporting country and increase efficiency by facilitating technological innovations and efficacious resource utilization. Increased productivity also enables the creation of high value-added products, comparative advantages, competitiveness in international markets, and an increase in exports.
FDI, which is regarded as a determinant of economic growth, may generally contribute to economic development, increase the level of general welfare, and increase employment in the country where the investment is made. In particular, FDI, which plays an important role in supporting technology transfer, provides countries with the ability to produce more with its existing resources, shorten production times, improve quality, and reduce costs while increasing productivity brought by new production methods. Concurrently, increases in labor productivity promote more FDI into the country.
This study examines ten transition economies that were members of the European Union over the period 2005–2019. It contributes to the literature by revealing the relationship between an increase in labor productivity (LP) and technology transfer, exports and FDI, as critical macroeconomic targets. The study’s inputs consist of LP per hour worked, the ratio of exports of goods and services to GDP (EXPOFGDP), and the ratio of FDIs to GDP (FDIOFGDP). LP data were obtained from the official Eurostat website, and other inputs were obtained from the World Bank data website. LP is used as an index value.
Before applying the panel causality analysis, a unit root test was performed, determined according to the results of an inter-unit correlation test. The results of the inter-unit correlation test demonstrated that second-generation unit root tests were used. After a stationarity analysis, a test for homogeneity was applied to whether the data series are homogeneous or heterogeneous. Then, Dumitrescu and Hurlin’s (2012) panel causality analysis, which is suitable for heterogeneous panels, was used. The results did not establish causality in the relationship between LP and exports, which is consistent with Kim, Lim, and Park (2009), Bernard and Jensen (1999), Fu (2005), and Delgado, Farinas, and Ruano (2002). The model established a one-sided causality for the relationship between LP and FDIs, indicating that LP causes FDI but not vice versa. These results are consistent with Sari, Hasyim, Afifudin, and Ruslan (2020), Le, Duy, and Ngoc (2019), Sofuoğlu and Kızılkaya (2018), and Ramirez (2006).
In today’s world, economic growth is difficult to achieve and must be made sustainable by producing more with existing resources or by transferring resources to other areas that create greater value and by pursuing inputs that increase LP, such as FDI.