The Impact of Foreign Direct Investment on Unemployment: Panel Data Approach

Abstract

The purpose of this study was to investigate the impact of foreign direct investment on unemployment in six countries in the Middle East and North Africa, Egypt, Jordan, Lebanon, Morocco, Tunisia, and Turkey, as this region is considered one of the most regions in the world with a high rate of unemployment. The study employed panel data for the period from 1990 to 2018, where three economic models were used to examine the impact of FDI on unemployment, male unemployment, and female unemployment, in the long run, using the Fixed Effect Model (FEM) and Random Effect Model (REM), in addition to finding the causal relationship in the short term using Panel VAR (Granger causality tests). The results showed that FDI reduces the unemployment rate, the male unemployment rate, and the female unemployment rate in the long run. The results of the study also revealed that there is no causal relationship in the short term between FDI and unemployment in its various forms, while there is a bidirectional causal relationship between FDI and exports according to the three economic models. This paper is the first of its kind in terms of examining the effect of FDI on unemployment in the six countries as a grouped and a sample of the MENA region.