Over the past two decades, the continent of Asia received a large amount of FDI from developed regions. Additionally, in the Asia, India and China received a major chunk of foreign direct investment and FDI flows to Pakistan also increased significantly. Many studies show that the inflow of FDI plays a significant role in generating employment in host countries. The objective of this study is to undertake an empirical study on creation of employment opportunities by FDI during 1985-2008 in the Asian region. In this regard, we have taken the sample of three countries i.e. Pakistan, India and China from the same region. The Im-Pesaran-Shin (IPS) test of unit root is applied to find out the order of integration. The long run relationship is investigated through the Pedroni (1999) test of panel cointegration. At last, the Seemingly Unrelated Regression (SUR) method is used for estimation of the impact of FDI inflows on employment levels in three countries. Implications for FDI policy are spelt out in the light of these empirical results. JEL classification: F23, E24, C23 Keywords: FDI, Employment, Panel Data

Industry characteristics is one of the main factors that determines a firm’s business risk [Kale, Hakansson, and Platt (1991)], and a single information can affect more than one security price change, perhaps even the whole market. Lessard (1974, 1976) explains that industry plays an important role in explaining national market volatility. One of the reasons for stock index behaviour are attributed to industrial composition as some industries are internally more volatile than the other [Grinold, Rudd, and Stefek (1989)]. Moreover, some sectors show a high degree of global integration, for example, the finance sector [Roll (1992)]. Similarly, consumer goods, fuel and energy, and transportation sectors are extremely important for any country index. King (1966) suggests that if a significant difference in industry risk premia is observed, then we need to isolate the market risk premia and industry risk premia. He observed that the industry components of variance showed much less change from sub-period to sub-period. Significant differential impact of regulatory policy on cost of capital across various sectors was also observed [Isimbabi (1994); Prager (1989)].

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