How does FDI Influence Employment Rate?

How does FDI Influence Employment Rate?

In the past decades, the developing economies have considered the FDI among the best options for fueling economic development. The labor marketplace, as well as the macroeconomic stability of a nation, are some of the significant aspects analyzed by investors (foreign) before they can decide on or pick a future host nation. With the rising operations of multinational corporations, one of the primary matters for the legislators in the developed economies is the unemployment rates caused by multinational firms, particularly in the manufacturing industry (Habib et al.,  49). For instance, increased rivalry with the foreign nations compels companies to move their sites of production abroad, which leads to unemployment in the host nations.

Notably, people believe that the decline in manufacturing jobs is due to globalization. Nonetheless, various studies, inclusive of those performed within Japan, have not essentially affirmed this “exporting jobs'” phenomenon (Mahmoodi 939). One of the reasons is the fact that FDI instigates rises in the final goods’ production in foreign nations, which positively influences the intermediate inputs’ production in the host nation, leading to an increase in, or maintenance of, the demand for the domestic labor. Such positive impacts might exceed or offset the adverse effects.

For instance, a study conducted to determine the effect of FDI on the rate of employment and economic development in Malaysia using the ordinary least squares technique indicated that FDI helped in reducing the rate of unemployment and improved the GDP (Gross Domestic Product). As such, a 1 percent rise in the FDI resulted in a decline of 0.009 percent in unemployment as well as a 1.219 percent rise in GDP. Such findings are greatly essential in the formulation and execution of policies (Mahmoodi 940). Therefore, the government needs to be concerned regarding FDI, which could benefit the economy. FDI can as well generate more domestic employment opportunities and facilitate the country’s economic growth.


Works Cited

Habib, Danish M., and Sarwar, Saima. Impact of Foreign Direct Investment on Employment

Level in Pakistan: A Time Series Analysis. Journal of Law, Policy and Globalization, vol.10, 2013, pp. 46-55.

Mahmoodi, Elahe, and Mahmoodi, Majid. Foreign Direct Investment, Exports and Economic

Growth: Evidence from Two Panels of Developing Countries. Economic Research, vol. 29, no. 1, 2016, pp. 938–949.