Foreign Direct Investment,Black Economic Empowerment andLabour Productivity in South Africa

The impact of foreign direct investment (FDI) on domestically owned firms in developingcountries has been widely debated in the literature. It has been argued that FDI providesaccess to advanced technologies and other intangible assets which may spill over to the hostcountry and allow domestic firms to improve their performance. While there is a substantialliterature on this issue, for obvious reasons, little is known about the effect of FDI ondomestic firms in the African context. Noting this gap, this paper uses two-period (2003 and2007) firm level panel data from South Africa to examine the impact of foreign directinvestment on the labour productivity of domestic firms. A key policy change during this timeperiod was the passage of the broad-based black economic empowerment act (BB-BEE) andwe also examine the effect of the interaction between foreign firm ownership and BEE onlabour productivity. Regardless of the empirical specification we find no spill over effects andno evidence that a greater degree of BEE compliance by foreign firms influences labourproductivity....