Balancing Act: Exploring the Impacts of High-Tech Exports on Foreign Direct Investment and Unemployment.

I. Introduction

Every firm wants to maximize profit, and rapid technological growth has changed opportunities, influencing international trade, investment, and employment levels. These forces are substantial factors which can either limit or augment the hope of small domestic firms wanting to expand, discovering new markets around the world, envisioning themselves as being among the giant industrialists through innovation, resilience and most of all driven by a vision of expansion and growth. This reality may also leave behind certain people, and there is a genuine fear of rising unemployment. Among the various characteristics of interest impacting economic globalization are foreign direct investment (FDI), technology exports and employment levels. Analyzing their impact is crucial for the central administration to implement or remove certain polices, impacting the growing industries.

Firstly, high technology exports are heavily based on cutting edge technology and innovation. These products typically include advanced electronics, computers and aerospace products, high tech products are typically characterized by significant investment in research and development. FDI usually refers to investments made by a firm into a business located in another country, typically involving the acquisition of an ownership stake of a foreign business, moreover FDI plays a key role in globalization.

As a preliminary exercise, Figure 1 shows the relationship between 2 graphs: the initial graph analyzing the impact of increased High technology exports on unemployment, and subsequently the second graph indicating the consequences of an increase in high technology exports on FDI, for three countries at different levels of income: Japan, India, and Nigeria.

The first graph shows a strong positive relationship, showcasing that an increase in high technology exports leads to a proportionate increase in the rate of unemployment, the driving factor that causes this is the adoption of high-technology export which often leads to the displacement of domestic jobs because these exports tend to rely more on technology than on labor, thereby reducing the demand for local workers and contributing to higher unemployment rates.

Next, India shows a negative relationship compared to Japan. The main reason behind this is, India being a developing economy relying more on manufacturing industries, an increase in high tech exports leads to more job creation in the economy hence decreasing the rate of unemployment in the short run. Lastly Nigeria shows a weak positive relationship due to its weak technological Infrastructure, the country lags technological advancement. Furthermore, a higher ratio of the industries depending on natural resources of the economy limits the growth for potential job creation in the high-tech sector causing an impact on the unemployment rates.

As seen in the second graph Japan portrays a strong negative relationship connoting that an increase in high technology exports leads to a fall in FDI flowing into the economy the main reason behind this phenomenon is that a developed country like Japan is extremely competitive in the market, dominating the international trade which results in limited opportunities for foreign investors to inject money into the economy resulting in a decline of FDI inflows in the economy. On the other hand, India shows a very weak positive relationship. The main reason behind this is India’s growing economy in the Technology sector and increase in growth of an industry makes it appealing for the foreign investor to direct the inflows from other countries to India as the risk involved revolving around the ROI is comparatively lesser leading to an increase in investments in turn resulting in an increase in FDI. Another major factor is the importance of the growing IT sector in India. The availability of specialized and skilled labor in high tech industries makes investments flowing into India more attractive. In the case of a low-income economy like Nigeria, there is bound to be a negative relationship as most of the labor force in Nigeria lacks the technological skills to perform in high-tech industries. This lack of skills leads to increased retraining costs, in turn increasing the cost of production for the goods and services, this leads to less competitiveness in the international market, ultimately leading to investors diverting their funds elsewhere (Smith, J & Jhonson, A. 2020).

FDI refers to investments made by foreign companies in the domestic economy or their assets. High technology exports encircle the percentage of manufactured goods that fall under the category of high-technology products in a country’s total exports. The two have shown immense positive impact by increasing salary and standard of living across various low- and high-income economies. In contraction, the effect on unemployment is diverse and complex depending on various other factors.

The aim of this research project is to analyze the intricate effect of the changes in unemployment, FDI, High-Technology Exports, before and after the Great Recession. More specifically, the two main research questions are

1) What is the relationship between technological growth and unemployment?

2) What is the relationship between FDI and technological growth?

II. Unemployment and Technology Exports

The relationship between High technology exports and unemployment plays a pivotal role in shaping economic development and labor market dynamics in which most countries show a significant negative correlation. Investigating the importance of the relationship is of significance as it dwells into the mechanism lying under the impact of high technology exports on spillover effects in other sectors of the economy. Thoroughly, an increase in high technology exports drives firms more to invest into training programs to increase the productivity of the workforce hence increasing the productive capacity of the economy in the long run also resulting in lower unemployment rates as shown in the graph. The graph shows that an increase in high technology exports leads to a decrease in unemployment rates. This can be advantageous to an economy in many ways. Firstly, it creates increased employment in industries such as electronics, telecommunication, and advanced manufacturers, stimulating the demand from downstream firms leading to the economy now being more competitive in international markets and a bonus being that the economy experiencing a current account surplus. The analysis of the impacts between these factors is very important to the central government as it acts as an aid to trade investment strategies. High tech exports are a crucial part to international competitiveness and investment strategies, if analyzed strategically countries can gain a strategic advantage to forge relationships with other powerhouses around the world to capitalize, diversify and promote economic growth. Determinants of High-tech Exports: New Evidence from OECD Countries. (2024).(

The graph shows a negative relationship between High Technology exports and unemployment. Firstly, each blue circle represents different countries. The reason behind the negative relationship between 2007-2022 is the driving factors that enable countries to export more high technology products into the market, enhancing the global competitiveness of attracting foreign investment resulting in infant industries emerging consequently while established industries globalize, causing an increase in employment. This will also result in an increase in the standard of living of the domestic consumers. In contrast, employment cannot always be guaranteed due to conflicting economic structures of different countries. For instance, as technology evolves tasks previously performed by humans are now automated, hence the demand for certain types of jobs is reduced leading to unemployment in sectors where work is repetitive and prevalent. In the longer run with the labor force adapting to changes, the demand for highly skilled workers will increase, leading to the polarization of the market where highly skilled workers benefit from highly paying jobs due to technological advancement simultaneously reducing the demand for jobs that can be automated hence unskilled labor will face displacement and stagnating wages. Another reason behind the negative relationship is the multiplier effect. The growth of high-tech exports stimulates the demand for goods and services across the economy this increased activity causes additional employment in industries such as transport, retail, logistics etc. Henn, C. H., Papageorgiou, C. H., & Spatafora, N. (2014).

The relationship between High Technology Exports and Unemployment, Analyzing the impacts before and after the recession.

The initial graph depicts an inverse association between high-tech exports and unemployment throughout the recessionary period spanning from 2007 to 2009. Subsequently, the second graph delves into the correlation extending after the Great Recession, tracing developments in this relationship up to the year 2022. Firstly, during the recession, the relationship between high tech exports and unemployment has been constantly changing. Due to the global contraction of the economy, while increase in high tech exports were usually associated with lower unemployment rates due to their potential to stimulate the productive output of an economy, the recession led to a decline in these exports resulting in lower unemployment rates. During the recession there was a significant contraction in economic activity also affecting high tech industries. The main reason behind the reduced global demand was the reduced disposable income of potential consumers and firms diminished optimism of the future. The surge of unemployment was also influenced by other factors such as decline in the aggregate demand, decreased government spending, and an increase in the interest rates further exacerbated to the negative impact on the unemployment rates. Gaur, M., & Kant, R. (2020)

The second graph illustrates the relationship between high tech exports and unemployment post-recession, showcasing how various factors impact the incidence of the relationship. The magnitude value of the y-axis has increased by a huge margin compared to the previous graph, most countries start to export high tech goods due to surges in demand post-recession additionally due to increased investments on technology research and development, furthermore the growth has been driven by imports in markets especially in Asia, as they are significant consumers of high-tech goods. In contrast this growth has been slow and uneven, some countries now face increased job losses compared to others. The main factor deciding the aggregate exports are the structural changes of various economies throughout the recession. Another major factor affecting this has been the various policies that the government has implemented such as expansionary monetary policies Zapata, Arrazola, Hevia (2014).

When examining the two graphs side to side, the countries’ high-tech exports are densely populated between 0-35 in the y-axis. In contrast, the subsequent graph shows that the countries are most densely situated within the magnitude values of 15-50 clearly implying that there has been a significant increase in the high technology exports as more countries are exporting agreater about of technological goods after the great recession. In addition, the second graph also shows that there are now more countries that export high-tech goods above the value of 75 showing clear growth in the high-tech exports. In conclusion the relationship between exports of high-tech goods and unemployment depends on each country’s economic structure that can change over time. While high technology exports are usually associated with lower unemployment rates they can be affected by economic policies and production levels too.

III. Technology Exports and FDI

Technology exports and foreign direct investment are one of the most important factors for policymakers to decide the economy’s health and growth potential. Studies show that FDI plays a significant role in driving economic growth and analyzing this data will help policymakers assess the various impacts of increases in FDI inflows into the economy. It also suggests that information on this is important for formulating trade and industrial policies particularly in OECD countries. Policymakers use this information to technologically upgrade exports and enhance global competitiveness. World Bank Policy Research Working Papers (2014).

The relationship between high-tech exports and FDI is usually positive, but the strength and significance depend on different countries’ economic structures. The positive relationship is mainly driven by 3 main factors: technology transfer, capital inflows and training, and technological knowledge transfer. Fundamentally, an increase in high tech exports facilitates increased technological sophistication improving competitiveness of the country and attracting foreign investors hence increase the FDI inflows into the country (Özsoy, S., Ergüzel, O. Ş., Ersoy, A. Y., & Saygılı, M. (2022)).

The graph shows a positive relationship between high tech exports and FDI between 2007-2022, with most countries’ exports being densely situated between magnitude values of 0-100. (own analysis)

The relationship between high technology exports and FDI, Analyzing the impacts before and after the recession

FDI and High technology exports certainly have a very complex relationship. The surge in cross-border FDI stands out as a prominent aspect of globalization, particularly benefiting developing nations grappling with capital shortages. FDI plays a pivotal role in bolstering economies byinfusing foreign exchange, creating job prospects, and bolstering tax revenues in host countries. Concurrently, it facilitates the transfer of advanced technology and knowledge, thereby elevating the knowledge base of recipient nations. This influx of technological know-how enables developing countries to venture into producing technology-intensive, high-value-added goods, thereby enhancing their competitive edge on the global stage. Consequently, the impact of FDI on countries is multifaceted, fostering- growth, productivity, employment, and competitiveness (Kamran, F., Tahir, M., Ansari, M., & Hussain, S. (2023)).

Firstly, the positive relationship mainly depends on the economy’s dynamics. During a recession the relationship might be impacted resulting in an overall economic downturn, ensuing a decrease in both high tech exports and FDI in the economy. The main reason behind this downturn being financial constraints and uncertainty of the economy leading to decreased FDI by investors.

Past the recession the relationship starts to strengthen, increased investor confidence leads to a significant boost in high tech exports by facilitating labor training, research and development, and increases in productive capacity of the economy. This transfer of skills contributes to the positive correlation of FDI and high-tech exports. Kamran, F., Tahir, M., Ansari, M., & Hussain, S. (2023)

It appears that the recession only has a temporary effect on the positive relationship, the post-recession recovery efforts depend on each country, hence contributing to economic growth and technological advancement of their economy. The paper aimed to analyze the impact of high- tech exports on unemployment and FDI, before and after the recession. The analysis revealed that there was an overall weak negative relationship between high-tech exports and unemployment; on the other hand, the relationship was strong between high-tech exports and FDI. These datasets are crucial for policymakers and foreign investors to analyze the dynamic structure of a certain economy before implementing policies The main limitation to this research was the limited availability of data regarding low-income economies high tech exports. In conclusion, the determinants are interrelated and multifaceted, the valuable insights highlight the importance of research and development expenditure, FDI, unemployment and trade openness in high tech industries.

References

Gaur, M., & Kant, R. (2020). Macro-Economic Determinants of High Technology Exports. European Journal of Business and Management Research, 5(5). https://doi.org/10.24018/ejbmr.2020.5.5.506

Henn, C., Papageorgiou, C., & Spatafora, N. (2017). Export Quality in Advanced and Developing Economies: Evidence from a New Data Set. IMF Working Papers, 17(168). https://doi.org/10.5089/9781484303146.001

Kamran, F., Tahir, M., Ansari, M., & Hussain, S. (2023). Impact of foreign direct investment on the exports of five major sectors of Pakistan’s economy: A governance perspective. International Journal of Sustainable Development and Planning, 18280/ijsdp.160305

Navarro Zapata, A., Arrazola, M. & de Hevia, J. (2023). Determinants of High-tech Exports: New Evidence from OECD Countries. J Know Econ.

Reddy, K., & Sasidharan, S. (2022). The impact of digitalization on export of high technology products: A panel data approach. Journal of International Trade and Economic Development, 31(2), 277-298. Doi: 10.1080/0963811042000313119

Smith, J., & Jhonson, A. (2024). Determinants of High-tech Exports: New Evidence from OECD Countries.

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