Effect of Foreign Direct Investment on Growth-Unemployment Nexus

Tomas Kadiša,Mindaugas Butkus,Akvilė Aleksandravičienė

doi:10.15388/soctyr.44.2.9

Tomas Kadiša, Mindaugas Butkus + Show 1 more

Open Access

https://doi.org/10.15388/soctyr.44.2.9

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Journal: Socialiniai tyrimai	Publication Date: Nov 25, 2021
Citations: 1	License type: CC BY 4.0

Affiliation: Vytautas Magnus University

Abstract

This paper examines the effect of foreign direct investment (FDI) on the growth-unemployment nexus. A review of previous contributions on Okun’s law uncovered which aspects of international relations are more prone to affect growth-unemployment nexus. It was found that inward FDI and outward FDI are most likely to affect this nexus. EU-28 panel data and interactive model with pooled OLS estimator were used to empirically test whether both inward and outward FDI moderates the relationship between growth and unemployment. The estimations showed that, as expected, FDI weakens the effect of growth on unemployment. Moreover, with an increase in FDI, the effect of growth on unemployment becomes less statistically significant.

Highlights

Unemployment is a vast topic whose relevance is highly dependent on economic activity
At the level of approximately 800%, growth itself no longer affects the unemployment
In a hypothetical situation as visible according to confidence intervals, the gross domestic product (GDP) loses its significance over unemployment if outward FDI (oFDI) reaches around 700 to 1000 per cent of GDP

Summary

Introduction

Unemployment is a vast topic whose relevance is highly dependent on economic activity. The topic is especially relevant in today’s world, where globalisation is spreading rapidly, and multicultural relations play a considerable role. Effect of Foreign Direct Investment on Growth-Unemployment Nexus the position in a global world. Foreign direct investments are one of the sources which can stimulate economic growth. This growth is highly related to unemployment since a growing economy reduces unemployment. There are many discussions on this topic in scientific literature as there may be some factors (for example, difference in productivity between women and men, differences among sectors, etc.) that can directly or indirectly affect the growth-unemployment nexus

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