Reports
Discussion Papers
No.1005 Local labor market effects of FDI: job growth and skills demand in Vietnam
by Banh Thi Hang, Ian Coxhead, Nguyen Dinh Tuan Vuong
March 2026
ABSTRACT
Foreign direct investment (FDI) in manufacturing industries creates jobs in labor-abundant developing economies, but does it also promote human capital development? We investigate the net contribution of FDI to employment and demand for skills in Vietnam, a country undergoing an economic boom driven by dramatic growth in export-oriented manufacturing. Nearly all job growth within this sector is due to FDI, so direct employment growth and skill mix outcomes largely reflect external choices over production scale and technology. FDI alters local labor markets directly, and also indirectly by stimulating growth and jobs in domestic firms. We estimate local FDI employment multipliers for total jobs and for labor by level of educational attainment. Our study seeks to fill a knowledge gap on the contribution of "factory to the world” strategies to human capital formation and economic growth.
Keywords: local labor market, multiplier, FDI, skill premium, Vietnam
JEL classification: O12, F16, F21, J23, J24
PDF available at https://hdl.handle.net/2344/0002001830
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.