Unemployment and Foreign Direct Investment Nexus: Empirical Evidence from Ghana

Abstract

Purpose: The paper examines the effect of foreign direct investment on unemployment in Ghana. Design/methodology/approach: The paper uses annual data spanning from 1990 to 2020 and employed the Autoregressive Distributed Lag (ARDL) estimation technique. Findings: The paper found that unemployment has a long-run relationship with foreign direct investment, gross domestic product, export and gross capital formation. Foreign direct investment and GDP has a negative long-run relationship with unemployment. On the contrary, export of goods and services positively relate to unemployment in the long-run devoid of gender. Lastly, we also found a mediating effect of GDP on FDI in reducing unemployment rate in Ghana. Research limitations/implications: The finding that export of goods and services relate positively with unemployment in the long run does not necessarily imply that Ghana should stop exporting goods and services in order to solve unemployment challenges in the country. Rather we should adopt the attitude of adding value to our raw products before exporting. And to reduce unemployment in the country, government should adopt incentivized tax policies to foreign investors to attract more FDI inflows into the economy. Originality/value: Not only does the present paper extend to more recent data, but it is also the first of its kind to the best of our knowledge in studying the nexus between FDI and unemployment rate in Ghana and also bringing to bear the gender dynamics of such relationship.