Effect of FDI “spillover effect” on Manufacturing Industries Employment in Iran

We can divide the role of FDI on employment in host country in two forms. First entry of multinational companies increases demand for skilled labor, because productivity is high in these companies, second, there is a "spillover effect" of these companies to dome stic firms. Therefore productivity in the multinationals companies are higher than domestic companies. Internal companies in order to adjust with foreign firms, they have to improve their productivity to reduce their gap with foreign firms. This paper uses panel data across Iran (ISIC manufacturing industries, from 1998 to 2002) to test inflow of FDI spillover effects on employment in these industries. The results shown that FDI inflow increase employment especially for higher skilled individuals and petroleum sector. Spillover effect is not significant in other industries. Because their productivity gap between domestic and foreign firms in this industries is very big or no FDI inflow has occurred in these industry.