FDI & Local Linkages in FDI & Local Linkages in Small Island Small Island Economies:Economies:Fiji & SamoaFiji & Samoa

Robert Read & Nigel DriffieldRobert Read & Nigel Driffield

Universities of Lancaster & Aston, Universities of Lancaster & Aston, UKUK

FDI Inflows to FDI Inflows to SmallSmall StatesStates

HypothesesHypotheses::

• They receive less than proportionate FDI They receive less than proportionate FDI inflows because of their inflows because of their sizesize.. xx

• They receive less than proportionate FDI They receive less than proportionate FDI inflows because of their inflows because of their incomesincomes..

• FDI inflows are associated with key growth FDI inflows are associated with key growth sectors – sectors – tourism, services, resourcestourism, services, resources..

FDI & Linkage FDI & Linkage CreationCreation

Direct LinkagesDirect Linkages

• Employment & TechnologyEmployment & Technology

• Vertical (Upstream & Downstream)Vertical (Upstream & Downstream)

Indirect Linkages (Spillovers)Indirect Linkages (Spillovers)

• Technology & KnowledgeTechnology & Knowledge

• AgglomerationAgglomeration

• CompetitionCompetition

Case Study Case Study MethodologyMethodology

Five case studies of firms in Fiji and Five case studies of firms in Fiji and Samoa, 2003 - natural resource processing Samoa, 2003 - natural resource processing and manufacturing.and manufacturing.

• Firm-level questionnaires and interviews.Firm-level questionnaires and interviews.

• Interviews with ministries, agencies and Interviews with ministries, agencies and other local institutions.other local institutions.

Employment & Employment & TechnologyTechnology

Impacts determined by relative labour Impacts determined by relative labour intensity and technological sophistication. intensity and technological sophistication. Also constrained by skill shortages.Also constrained by skill shortages.

• Natural ResourcesNatural Resources: Limited employment : Limited employment effects and standard technology.effects and standard technology.

• ManufacturingManufacturing: More substantial effects : More substantial effects with some advanced technology.with some advanced technology.

Vertical Vertical LinkagesLinkages

Upstream impact determined by input Upstream impact determined by input sources. Downstream impact limited by sources. Downstream impact limited by high export-orientation.high export-orientation.

• Natural ResourcesNatural Resources: Generally substantial : Generally substantial upstream linkages, limited downstream.upstream linkages, limited downstream.

• ManufacturingManufacturing: Export platform activity : Export platform activity with few vertical linkages. with few vertical linkages.

Spillover (Spillover (IndirectIndirect) ) EffectsEffects

Some evidence of spillover effects but not Some evidence of spillover effects but not always positive.always positive.

• Technology & KnowledgeTechnology & Knowledge: Limited by : Limited by low labour turnover (unemployment).low labour turnover (unemployment).

• AgglomerationAgglomeration: Some in manufacturing.: Some in manufacturing.

• CompetitionCompetition: Evidence of positive (entry : Evidence of positive (entry barriers) and negative effects (monopoly).barriers) and negative effects (monopoly).

Constraints on Linkage Constraints on Linkage CreationCreation in Small Statesin Small States

• Level of developmentLevel of development: Limits the type of : Limits the type of linkages created.linkages created.

• Type of FDI inflowsType of FDI inflows: :

-- Resource FDI focused on local inputs.Resource FDI focused on local inputs.

-- Manufacturing FDI focused on Manufacturing FDI focused on employment.employment.

• Shallow economic structureShallow economic structure: Limits the : Limits the potential scope for linkages.potential scope for linkages.

General Constraints on General Constraints on Linkage CreationLinkage Creation

• The availability of local skillsThe availability of local skillsLimited labour with requisite skills – result Limited labour with requisite skills – result of out-migration, lack of employment of out-migration, lack of employment opportunities and insufficient training.opportunities and insufficient training.

• Policies to create local linkagesPolicies to create local linkagesInsufficient effort made to maximise linkage Insufficient effort made to maximise linkage effects – excessive focus on attracting FDI, effects – excessive focus on attracting FDI, regardless of likely impacts.regardless of likely impacts.

ConclusionsConclusions

• Small island states, such as those in Small island states, such as those in the Pacific, can attract FDI inflows.the Pacific, can attract FDI inflows.

• These FDI inflows can generate an These FDI inflows can generate an array of local linkage and spillover array of local linkage and spillover effects.effects.

• These linkages have emerged in These linkages have emerged in spite of the limited potential for their spite of the limited potential for their creation in small island states.creation in small island states.

Case Study Local LinkagesCase Study Local Linkages

TechnologyTechnology EmploymeEmploymentnt

BackwardBackward ForwardForward SpilloverSpilloverss

Tuna – FijiTuna – Fiji

Tuna – Tuna – SamoaSamoa

CoconutCoconut

– – SamoaSamoa

xx

Footwear Footwear

- Fiji- Fiji

ApparelApparel

- Fiji- Fiji xx