Foreign direct investment, labor mobility and knowledge spillovers in Costa Rica

Abstract

This paper aims to determine the existence of knowledge spillovers associated to labor mobility from multinational companies (MNCS) operating in Costa Rica. That is, the impact of such knowledge spillovers over the performance of local firms that hire MNCS’ former employees. We found that, out of a total of 41 149 MNCS’ employees who quitted working for these companies between 2001 and 2007, inclusive, one third shifted to work for local firms (15 139). Knowledge spillovers’ impact on the latter was measured in terms of three variables: sales, employment and average labor productivity, using a panel of local firms for the period between 2007 and 2009, inclusive. Using econometric models suggested by the literature on this field, we found evidence indicating that local firms which hired MNCS’ former employees perform better in terms of employment and sales growth that those local firms not hiring MNCS’ former employees.We did not find the same evidence when measuring local firms’ performance using average labor productivity. Finally, results point out the importance of conducting new research about the local firms’ absorption capacity in order to boost even more the positive impact of knowledge spillovers, as well as the impact of such spillovers on total factor productivity.