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Impact of Foreign Direct Investments on Unemployment in Emerging Market Economies: A Co-integration Analysis

Yilmaz Bayar () and Mahmut Unsal Sasmaz
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Yilmaz Bayar: Assoc. Prof., Usak University, Faculty of Economics and Administrative Sciences, Department of Economics
Mahmut Unsal Sasmaz: Assist. Prof., Usak University, Faculty of Economics and Administrative Sciences, Department of Public Finance

International Journal of Business and Economic Sciences Applied Research (IJBESAR), 2017, vol. 10, issue 3, 90-96

Abstract: Purpose: The goal of the paper is to investigate the long run effect of both foreign direct investments and domestic investments on the unemployment in 21 emerging economies over the period 1994-2014. Design/methodology/approach: The effect of domestic and foreign direct investments on unemployment was investigated via panel data analysis. First tests of cross-section dependence and homogeneity were conducted, and then the stationarity of the series was analyzed with Pesaran's (2007) CIPS unit root test. The long run relationship among the series was examined with Westerlund-Durbin-Hausman's (2008) co -integration test. Finally, we estimated the long run coefficients with the Augmented Mean Group (AMG) estimator. Findings: The empirical findings revealed a co-integrating relationship among domestic investments, foreign direct investments, and unemployment. Furthermore, foreign direct investment inflows affected the unemployment positively in the long term, but domestic investments affected the unemployment negatively. Originality/value: This study can be considered as one of the early studies researching the long run interaction between domestic investments, foreign direct investments and unemployment for the sample of emerging market economies. Furthermore, the findings are very meaningful for policymakers in the design the economic policies for decreasing unemployment.

Keywords: Gross capital formation; foreign direct investments; unemployment; emerging market economies; panel co-integration analysis (search for similar items in EconPapers)
JEL-codes: C33 E24 F21 F23 (search for similar items in EconPapers)
Date: 2017
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International Journal of Business and Economic Sciences Applied Research (IJBESAR) is currently edited by Christos Grose and Persefoni Polychronidou

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