The Relation Between FDI and Unemployment: An Empirical Study on Egypt

Said, Rooye Mohammed; Abd Al Baqy, Aya Anas; Mohammed, Hania Amr; Okasha, Salma Alaa El Den; Shaaban, Sara Mostafa

doi:10.21608/ijppe.2022.216408

The Relation Between FDI and Unemployment: An Empirical Study on Egypt

Authors

Faculty of Economics and Political Sciences- Cairo University

10.21608/ijppe.2022.216408

Abstract

The relation between foreign direct investment (FDI) and unemployment is one of the most controversial relationships in economic literature as there is no consensus on this relation and it differs from one country to another. The aim of this paper was to examine and analyze the relation between FDI and unemployment in Egypt from 1990 to 2019 to examine if FDI helps in reducing the chronic unemployment problem or not. The paper provides qualitative analysis, which includes analysis of the trend of FDI and unemployment, as well as policies adopted by the Egyptian government aiming at encouraging FDI like enacting Capital Market Law No. 95 of 1992, Law No.3 of 1997 and Investment Law No. 72 of 2017, GAFI was mandated to develop an investment map in cooperation with all concerned country’s authorities. To add up to that, the paper analyzed the policies and initiatives developed by the government from 1990 to 2019 to reduce unemployment.
In addition to the qualitative analysis, the paper provides quantitative analysis through using the Ordinary Least Squares method (OLS) for estimating the econometric model. The dependent variable in the model was unemployment rate and the independent variables were net FDI inflows as a percentage of GDP, exports as a percentage of GDP, annual growth rate of GDP and annual inflation rate measured by consumer price index (CPI). The main findings were that there is a positive significant relation between FDI and unemployment in Egypt. This might be due to the fact that FDI is directed towards capital-intensive industries as well as short term employment labor intensive industries. Thus, the paper suggested that the government should be working to attract FDI in labor-intensive industries that relies on local products and expertise in sectors that do not provide only seasonal or short-term employment and improving the quality of labor through providing training programs that can improve their skills and add to their knowledge so as to increase the relative competitiveness of the domestic labor.

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