It is a general understanding that firms in general underinvest in training in both developing and developed countries (Batra and Tan, 2002; OECD, 2003; OECD, forthcoming). Among the few surveys that cover enterprise training in the developing countries, the World Business Environment Survey (WBES) provides some information about cross-country comparison in training incidence. It shows that on average, 60 per cent of firms in both East Asia and Latin America and the Caribbean (LAC) regions conduct some formal training (Batra and Tan, 2002; Batra, 2003). However, there are wide variations in the incidence of formal training, which ranges from 65 to 75 per cent in China, the Philippines, and Singapore to 30 per cent in Malaysia. Another set of enterprise surveys that compared training incidences in Indonesia, Malaysia, Chinese Taipei, Columbia, and Mexico in the early 1990s25 also confirm large variances, with high performing countries such as Columbia (50 per cent) and Malaysia (35 per cent) to low performing countries such as Indonesia (19 per cent), Chinese Taipei (9 per cent) and Mexico (11 per cent).
What are the sources of training? WBES distinguishes between formal in-house training provided by the employer, and formal training provided by external public/private training institutions. It indicates that formal in-house training is the major source of training provided by firms in both East Asia and LAC regions, accounting for 40 per cent in East Asia and 50 per cent in the LAC. Among firms that use outside training sources, most firms in both regions appear to rely on private training institutions.
Underinvestment in training that is relatively unequally distributed is a disturbing evidence when host developing countries are trying to catch up with the skills level of the industrialised economies and enterprise training is one of the most important sources of skills acquisition. Indeed many studies have shown that enterprise training raises labour productivity substantially. Empirical studies show that productivity gains of training range from about 50 to 75 per cent in Indonesia, Nicaragua and Guatemala, to about 30-45 per cent in Mexico, Malaysia and Colombia (Tan and Batra, 1996; Batra, 2003). These productivity gains are even stronger for small- and medium-sized firms (World Bank, 1997). Before describing policy measures to tackle these training problems, the literature on training determinants is assessed to identify the reason behind this underinvestment.
OECD DEVELOPMENT CENTRE Working Paper No. 211 HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES by Koji Miyamoto
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