Role of Foreign Direct Investment in Employment Generation: Evidence from FDI Recipient Economies

Abstract

Remarkable global FDI flows during last two decades have substantial impact on labor market in developed and developing economies. The present study intends to explore the role of FDI in employment generation. By taking the data from 1991-2020 for top twenty FDI recipient economies (developed and developing) the study used system GMM model to test the hypothesis empirically. Employment level is taken as dependent variable and net inflows of FDI to GDP ratio is taken as principal variable. Other control variables include in the study are, Gross fixed capital formation (GFCF), inflation (INF), Gross domestic product (GDP) per capita, labor force (LF) and trade openness (TOP). The findings of study reveal that inward FDI has strong positive impact on employment levels in both developed and developing economies. As policy suggestion it is recommended that inward FDI should be encouraged in those sectors which can generate more employment opportunities for local labor especially in developing economies.