FOREIGN FIRMS & THEIR EMPLOYEES: THE PROSPECT FOR FIRM-LEVEL HUMAN CAPITAL DEVELOPMENT IN SOUTHEAST ASIA
The diverse developing countries of Southeast Asia - Cambodia, Indonesia, Malaysia, Thailand, Philippines, Laos, and Myanmar -have by and large embraced globalization through trade liberalization, integration with global production networks, and engagement with multinational corporations. These foreign owned firms remain key actors in Southeast Asia's rapid economic development. Many of the region's policymakers are committed to a policy framework that aims to harness the capital, technology, and know-how of these foreign firms in order to achieve domestic policy objectives. Foreign firms are attractive to policymakers as they are seen as being better than domestic firms due to their superior technology, access to capital, human capital, and other characteristics which give them a competitive advantage. Many countries develop a framework of incentives to attract, retain, and expand the operations of these foreign firms in order to maximize the potential benefits these firms bring, including to a host country's human capital. This is based on an assessment that foreign firms provide positive human capital `spillovers' to local employees through firm-level training and other mechanisms. There is a gap in researchers' and policymakers' understanding of how this process happens at the firm-level as much of the current literature is based on country-level data, including in Southeast Asia. This paper helps fill this gap by using firm-level data to show that majority foreign owned firms are more likely to provide human capital development through formal training programs. The empirical results have important implications for policymakers trying to generate positive spillovers, showing that not all foreign firms are alike and that a comprehensive strategy of engagement, beyond initial fiscal incentives, is needed to maximize the potential spillovers.
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