Foreign direct investment, economic growth, and unemployment: Evidence from developing countries

Abstract

High unemployment is one of the major difficulties confronting most modern countries, putting social, economic, and political strain on policymakers. Foreign direct investment (FDI) is critical to a country’s economic development, particularly in transitional economies. FDI is a major source of capital inflows to developing countries. FDI affects the level of employment in the host country, in addition to its many other effects. The research is based on the studies of Johnny, Timipere, and Krokeme (2018) and Zeb, Qiang, and Sharif (2014) that have examined these variables in this paper. This study investigates the relationship between FDI, economic growth, and unemployment to quantify and assess the relationship in selected developing countries or Western Balkans countries according to these variables. Data for the developing countries of Western Balkan were collected in the observed period 2015–2019. Differences between countries were explored in terms of FDI, gross domestic product (GDP), and unemployment using the data produced from the one-way analysis of variance (ANOVA) test. According to regression analysis, FDI and GDP have a considerable impact on country unemployment. The results showed that FDI and GDP have an effect in decrease unemployment in the developing countries examined.

The Impact of Foreign Direct Investment, Economic Growth, Trade, and Covid-19 on Unemployment: Evidences from MENA

“…Thus, OECD (2020) shows that the presence of FDI in the six selected developing countries in the MENA region can significantly reduce the unemployment rate. This is in line with the research by Kukaj et al (2022) Our study finds that the coefficient of GDP is negative (-0.042), meaning that if the GDP goes up by 1%, the unemployment rate will go down by 0.042%, holding other variables constant. The results of this study accept Okun's law on the relationship between economic growth and unemployment.…”

“…Alalawneh & Nessa (2020)'s earlier study on unemployment in the Middle East and North Africa over the period 1990-2018 revealed that foreign direct investment (FDI), inflation rates, and exports influence unemployment in MENA nations. Several other studies find similar results, including Febryastuti (2019); Kukaj et al (2022); Marzan et al (2020);and Zeb et al (2014). Nonetheless, there are also a number of contradicting and divergent studies, such as Aktar & Ozturk (2009); Johnny et al (2018);and Tegep et al (2019), which find that these macroeconomic factors have no effect on the unemployment rate.…”

“…In the economic development of a country, especially developing countries, FDI is one of the driving factors because it relates to investment that can boost a country's economy. The presence of FDI is capable of reducing high unemployment rates in the host country because FDI can help the developing economic sector to create jobs in countries with open economies (Kukaj et al, 2022). Zeb et al (2014) study, which uses multiple regression analysis, states that FDI, corruption, size of population, and inflation on Pakistan's unemployment rate from 1995 to 2011 statistically significant affected unemployment reduction.…”

“…Recent research by Kukaj et al (2022) shows that the influence of FDI and economic growth on unemployment in developing countries, including Albania, Montenegro, North Macedonia, Bosnia, Serbia, andCroatia, in 2015-2019 significantly supported the countries' declines in unemployment. The study utilized one-way variance analysis of Anova.…”

“…Several studies have verified Okun's rule and showed the influence of economic growth on a country's rate of unemployment, including a study by Kukaj et al (2022) that examined the influence of growth of economy on unemployment in developing states located at the Western Balkans for the period of 2015-2019. They examined the differences between those countries in terms of FDI, GDP, and unemployment by utilizing a one-way analysis of variance to test the data.…”