This dissertation studies the effects of foreign direct investment (FDI) on inclusive growth and employment. The first chapter examines the conditions under which FDI can effectively lead to inclusive growth. By using a fixed effects regression with annual data for 67 countries from 1990 to 2015, we find that FDI has a positive effect on inclusive growth when there is a sufficiently large manufacturing sector and infrastructure base in the host country. We also indirectly find that FDI has a positive effect on inclusive growth when the host country has a large service sector. These not very optimistic results emphasize the critical importance of the host country’s absorptive capacity. A smaller technological or knowledge gap with the foreign firms is required for FDI to lead to more linkages and spillovers, and ultimately job creation for the poor.

The second chapter looks at the effect of manufacturing FDI on manufacturing employment in Sub-Saharan African countries, by using annual data for 16 manufacturing industry sectors in 15 SSA countries from 2003 to 2018. In the first analysis, we find that manufacturing FDI has a positive effect on manufacturing employment at the industry sector level. In the second analysis, we look at how the effect of manufacturing FDI on manufacturing employment differs by groups of industry sectors. The results show that the effect of manufacturing FDI on employment creation varies by industry sector groups; automotive related industries create the most, followed by business machines/electronics related industries, and lastly metals/minerals related industries. The result reflects both direct and indirect employment effects via spillovers and forward and backward linkages.