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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Beata Javorcik is a Professor of Economics at the University of Oxford, and she is a research affiliate at the Centre for Economic Policy Research in London. One of her research focuses is on foreign direct investment. Javorcik discussed the quality of the jobs created by multinational corporations and FDI (foreign direct investment). Generally speaking, certain jobs reduce poverty and “increase overall expertise” within the economy more effectively. Thus countries should focus on creating these “good jobs”. Take the other side of the coin, the worker, and good jobs lead to a higher standard of living. Better jobs lead to better pay, higher potential for an increase in pay, and a more satisfied workforce. Javorcik continues to explain foreign businesses pay high wages, in emerging markets, than local counterparts. In Hungary and Brazil, there was a 4.5-6% premium of working at a foreign entity or. a local one. Economists have seeked to explain why this premium exists, Javorcik cites a proposed theory by economists Egger and Kick Meir. Their model has two parts to their explanation. First, the premium is a result of more productive foreign businesses who earn higher profits and can then pay higher wages. The second component is called the “firm-level wage effect”. Foreign businesses pay more because their parent companies have higher global profits. Although each concept is similar, there is a distinct difference in where the extra money is coming from. Another advantage to foreign firms is the training and professional development offered. A study conducted in the Czech Republic in 1994 found foreign businesses trained and developed for 4.6 times more  time than similar domestic entities. Javorcik then returns to looking at the host country's perspective. Again, the increased productivity created by higher quality jobs will increase expertise and therefore the value of the economy,. This is because, in Javorcik words, “multinationals are creators of knowledge.” They take this knowledge and transmit it abroad to foreign affiliates, and this has shown to be effective. Indonesian Plants that received FDI exhibited 13.5% faster productivity growth than similar plants without it. But that doesn't mean indigenous plants lose out. There is “ample evidence” supporting the existence of “knowledge spillovers”. These occur when knowledge from a multinational is used by a local business without fully compensating the multi-national. This often happens through product analysis, new tech, marketing and management strategies, and other observations of business practices. A second externality of foreign business activity is the direct and indirect financial benefits. Javorcik explains this with the example of a foreign firm enters a “downstream sector”, creating more demand for “inputs”, thus enticing domestic businesses to better their performance by upgrading products, tech, and scale up. Therefore, based on existing evidence, Javorcik concludes that jobs created as a result of FDI are good jobs for both workers and the host country.

Economic promise and opportunity are the most important elements of a growing economy, and Incubators are the world's best tool for creating quality, sustainable, job growth that serves as a basis for promise and opportunity based economic development in underdeveloped countries. Because small companies from these countries have relatively few resources and often limited technical and business expertise, they have seeked support of business incubators to compete in local, national and international markets. As a result of their popularity, they are increasingly being adopted by the governments of developing countries, often in collaboration with intergovernmental organizations such as World Bank Group (Busler). In Ghana WBG has funded BusyInternet, an incubator that seeks to reduce the failure rate of early-stage companies and speed up the growth of companies with potential to generate wealth and employment. Such initiatives are central to modern economic development, because it creates a sustainable ecosystem in which local incubators, help local businesses, that help the local economy. This serves as a more sustainable economic solution than foreign investment because the host country's livelihood is directly connected to the business' success. Developing countries, and Ghana in particular, often place a premium on the short run gains of having a larger presence of multi-nationals. However, multi-nationals are actively seeking new opportunity, so developing economies can suffer major job loss as a result of a multinational simply closing down and moving (Baafi). Multinationals also do not foster an innovative culture. As a result, multi-nationals are unstainable, low-growth methods of economic improvement. Incubators, on the other hand, foster a culture of innovation and tremendous growth (Mubarak). For example, China's extensive business incubator program from the early 1990s has played a key role in facilitating the country's transition from a socialist to a market economy  Once again, incubators lay the foundation for systematic growth, rather than selective growth as a result of “knowledge spillovers” described by Javorcik. No foreign firm could come into China and change the economy. it is the innovators domestically that opened the space for multi-nationals to move in. Economic growth in countries with developing economies should be about creating economic opportunity. FDI for multi-nationals goes to the multi-nationals, but if given to a different, smaller and domestic entity could be used to more effectively better a country's economy.

Although Javorcik is correct in arguing FDI is an effective catalyst for economic growth, business incubators are a more effective investment of FDI than multi-nationals. Creating competitiveness in a capitalist economy is crucial to innovation and growth. Rather than fund a large multi-national business, FDIs should go to SMEs (small and medium enterprises) in order to create more domestic competition in a growing economy. However, in countries with the least developed economies, the informal economy often contributes more to employment and the GDP. Thus, countries must develop their formal sector in order to further grow their economy through foreign capital. OECD explains that this must become an important policy priority, and reforms must be made to bring the sectors together. This can therefore enable the poor, who are the largest informal sector participants,  to participate “in higher value added business activities” (OECD). But, beyond policy, an economic instrument is required to bring informal enterprises into the formal sector for funding (OECD). This is where business incubators come in.

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