Foreign direct investment (FDI) is considered by policymakers as an important driver of local economic development. For example, foreign investors may establish supply chain linkages with domestic firms, enhancing their productive capacities (e.g. Alfaro-Urena et al., 2022), or impact the labour market by creating new employment opportunities, better jobs and stimulating workers’ mobility (e.g. Setzler and Tintelnot, 2021; Poole, 2013). However, the empirical evidence on the effects of FDI is mixed. While there is an extensive literature on the impact of FDI on growth and economic development, little research has been done to understand whether FDI matters for structural transformation. Moreover, and with some exceptions (e.g. Toews and Vezina, 2022; Mendola et al., 2022), empirical work generally lacks enough granularity to account for the heterogeneous features that can affect the “quality” of FDI projects, or their impact at the subnational level. In this project, we use finely disaggregated data to evaluate the consequences of attracting FDI projects at the level of each local labour market, conditioning on the activity performed by foreign investors. We look at the role of FDI in driving the process of structural transformation at the subnational level for a sample of 24 African countries over the past 30 years.
