Do MNEs Train More than Domestic Firms?

Most empirical findings confirm this by using variables representing foreign ownership. Tan and Batra (1996), Tan and Lopez-Acevedo (2003), and Miyamoto and Todo (2003) show that higher foreign equity share is indeed an important determinant of training in Mexico, Indonesia and Malaysia. Why do MNEs train more than domestic firms? The literature provides numerous explanations. MNEs are less likely to face credit constraints since they usually have wide access to foreign capital. It is also suggested that MNEs are more likely to gain information on techniques and organisation of training since their range of information is global. They can also reduce the probability of labour turnovers by providing attractive compensation packages to keep the employees after the training provision27. A recent analysis in Almeida (2003) indicates that foreign-owned firms “cherry pick” domestic firms to be acquired, choosing those firms with a higher educated workforce. If an educated workforce is more likely to be trained, or if “cherry picked” firms tend to be high-technology firms that require training, MNEs are more likely to train than domestic firms.

OECD DEVELOPMENT CENTRE Working Paper No. 211 HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES by Koji Miyamoto To learn more about this author, visit OECD Development Centre's Website.

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