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Occasional Paper Gender Policy 12: Foreign Direct Investment, Development and Gender Equity: A Review of Research and Policy

22 Mar 2006

  • Author(s): Elissa Braunstein

In this review of the impact of foreign direct investment (FDI) on productivity, trade, employment, wages and working conditions, the author finds few of the straightforward conclusions that the popularity of FDI as a tool for development would seem to indicate. Two issues arise consistently, however. First, very little is understood about the dynamic impact of FDI. Even where positive correlations between FDI and investment, employment or wages appear, little is known about whether and how the impact is sustained - to what extent (and how) FDI impacts the process and trajectory of development. Second, the economic and policy context for FDI is a crucial determinant of its eventual impact.

In terms of women and FDI, foreign investment in labour-intensive, largely export-oriented industries has had a significant impact on women’s work and development. While the relationship has been positive in semi-industrialized countries, there is mounting evidence that women either lose jobs to more highly qualified men as industries upgrade, or get pushed down the production chain into subcontracted work as competition forces firms to continually lower costs. There is likely to be some short-term improvement in women’s incomes as FDI expands, but the longer-term trajectory of women’s wages is less promising. This is because women’s concentration in highly competitive traded sectors and the high mobility of transnational capital are instrumental in determining the gender wage gap. While women’s wages may undergo an absolute boost from foreign investment, it seems unlikely that this will close the gender wage gap.

Taking up the issue of public policy and FDI, the author argues that there are ways to structure FDI policies from a gender-aware perspective, and that it is crucial to link this type of FDI more closely with development. In terms of equity itself, however, the most important intervention open to governments is to enhance the productive capacities of women and girls, as well as to expand the social supports available to them and their families as they enter the labour market. Such policies will not only make women more productive workers, and thus better able to draw on the potential advantages of FDI, but will simultaneously redress the structural sources of gender inequities.

Elissa Braunstein is Assistant Professor of Economics at Colorado State University, Fort Collins, United States.

Order from UNRISD; 40 pages, 2006, $12 for readers in industrialized countries, $6 for readers in developing and transitional countries and for students.