Impact of Foreign Direct Investment on Unemployment Level

Abstract

The purpose of this paper is to examine and discuss direct and indirect impact of foreign direct investments on unemployment rate covering group of transition countries by using statistical data from The World Bank and National Statistical Committees of countries for the period from 1998 to 2013. Main hypothesis is that increasing of FDI leads to decreasing of unemployment. Unemployment rate was divided on three groups i) total unemployment rate; ii) unskilled unemployment rate; and iii) skilled unemployment rate. After reviewing the works collected for this research it can be concluded there is not always positive relationship between foreign direct investments and unemployment. The investigation is based on panel data analysis by using General Method of Moments (GMM) estimation procedure and Fixed Effects (FE) to examine relationship between FDI and unemployment. Obtained results showed that without controlling of technology level, FDI is found to be negatively correlated with unemployment rate. However, inclusion of the level of technological advancement leads to completely different results.