Association for Public Policy Analysis & Management

Foreign direct investment (FDI) inflows are believed to create more and better jobs and thus contribute to sustainable economic development (Javorcik, 2014). However, not all FDI might be favorable to the local economies, specifically, if it comes from tax havens. It is documented that offshore FDI might be considered as the round-tripped or not genuine investment if domestic businesspeople move their assets to tax havens and reinvest them back in the form of FDI (Aykut et al., 2017). The empirical question is whether round-tripped FDI can bring new jobs, increase wages, and productivity of domestic workers given the nature of this investment?

We study this question using a panel data that covers the universe of firms in Ukraine during 1997-2015. Ukraine is a country with almost a third of its FDI coming from tax havens such as Cyprus and the British Virgin Islands. Long panel data allows controlling for some types of selection bias that varies across firms but are time-invariant while also accounting for industry-year as well as firm fixed effects. Impact at the regional level is also considered.

This study may be the first one to examine and quantify the extent to which offshore ownership affects jobs and their quality, including wages and labor productivity, using firm-level data. As a result, it can serve as the new evidence for the wide range of policy changes towards the achievement of Decent Work and Economic Growth goal of UN.