Impact of Foreign Direct Investment on Unemployment Rates in East African Community Founding Members: Who benefits the Most?

Abstract

The study analyses comparative effects of Foreign Direct Investment (FDI) inflows on youth unemployment in East African Community (EAC) founding member countries of Kenya, Tanzania and Uganda. Based on time series data from 1990 to 2016, the Auto Regressive Distributed Lag (ARDL) regression revealed that, FDI significantly influences reduction in unemployment rate in Kenya by 0.708%. The results in Tanzania and Uganda showed that, FDI inflows increases unemployment rates by 0.337% and 0.852% respectively. The results revealed that, FDI is significantly benefiting Kenya young generation through job creation, as compared to Tanzania and Uganda. Unemployment rate in Kenya has been reduced significantly due to FDI inflow by 0.14 % by each percentage of FDI inflow. The favourable economic and social policies in Kenya, have been well integrated into investment policies and result into positive prospects of employment creations. In Tanzania and Uganda, FDI inflows have not been much effective on youth unemployment. Every percentage of investment growth, causes an increase of 0.34% and 0.85 % of unemployment in Tanzania and Uganda respectively. Based on these results, it is recommended that, both Tanzania and Uganda should revisit their FDI related policies to ensure the FDI programmes are beneficial in reducing unemployment rates.