Foreign Direct Investment and Structural Transformation in Africa

Abstract This paper analyzes the relationship between inward foreign direct investment (FDI) and the structural transformation of local labor markets in Africa. We combine geolocalized information on the distribution of FDI with a novel database that provides information from 40,633,256 individuals in 2,570 subnational units from 1987 to 2019. We find that FDI contributes to increased employment and shifts of workers towards modern industries and higher-skilled occupations. Results are heterogeneous, reflecting the characteristics of the foreign investors and their business activities. FDI projects are associated with increases in internal migration, while geospatial analysis of changes in the performance of domestic firms exposed to nearby FDI projects provides evidence of positive spillovers, suggesting complementary mechanisms through which FDI drives structural change.