Seminar - Human capital development and global value chains: Evidence of foreign direct investment and vocational training in Southeast Asia

You are cordially invited to attend a research seminar by J. Eduardo Ibarra-Olivo, Henley Business School. Follow the link in your calendar email invitations(Join Microsoft Teams Meeting) to join the seminar on Wednesday, 28th April at 13.00.

Abstract:

As middle income economies increase their participation in global value chains (GVC), human capital development has become ever more critical for competitiveness and economic upgrading. However, national education systems in these countries often present an imbalance between technical and vocational education and training (TVET) and academic education, which results in undersupply of the required skills by multinational enterprises (MNEs). Failing to keep pace with the changing skill demand, these economies might eventually experience a slowdown in economic growth rates and risk becoming stuck in a middle-income trap. It has been argued that foreign direct investment (FDI) can potentially enlarge and improve host regions’ human capital base. By providing attractive employment opportunities, FDI may modify educational choices of the population and incentivise the uptake of TVET certifications. Over the last decades, Southeast Asia has experienced rapid economic development, partly spurred by successful attraction of substantial inward FDI. Moreover, there have been some efforts to strengthen national TVET systems to match the skill requirements of GVCs. Vietnam and Indonesia are among the top inward FDI recipients within the region and have a very similar FDI value chain structure, with new foreign jobs mainly concentrated in production activities but increasing in other service activities. The aim of this paper is to explore whether inward FDI in different value chain segments generates broader regional impacts by rising numbers of graduates in host regions’ TVET systems. Our findings suggest that increasing foreign jobs in greenfield FDI projects in value chain segments such as logistics, sales and marketing, and support and servicing are associated with an increase in the supply of TVET graduates in the host region. Conversely, foreign jobs in headquarters or production may lead to declining technical skills in the region. Whilst FDI has the potential to contribute to the host economy’s human capital development via the introduction of incentives in the local labour markets, we argue that the heterogeneous effects across value chain segments, largely depend on the types and skill intensity of the economic activities in which investment is made, as well as on the flexibility of TVET systems to adapt their output to changing skill demand of higher value adding stages of the value chain.