Relationship between foreign direct investment and unemployment: An approach with co-integration techniques for CAN countries

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Published: jul. 15, 2020
Keywords:
Time series, Unemployment, Foreign direct investment

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Belén Jumbo
Universidad Nacional de Loja
Michelle López
Universidad Nacional de Loja

Abstract

This research uses cointegration techniques to determine the relationship or the effect of foreign direct investment (FDI) on the unemployment of the member countries of the Andean Community of Nations (CAN) Bolivia, Colombia, Ecuador and Peru during the period 1980- 2017 The results showthat there is a negative relationship between both variables for Colombia and Peru. That is, an increase in investment decreases unemployment. While for Ecuador and Bolivia there is a positive relationship. That is, an increase in FDI increases unemployment. There is also a long-termbalance between FDI and unemployment for all countries, and a short-term equilibrium relationship for Colombia. As for Granger’s causality, there is unidirectional causality from FDI to unemployment only for Colombia. As policy implications, we propose that the government of each member country of the Andean Community of CAN Nations must prioritize the attraction of foreign capital by first providing political stability, a favorable macroeconomic scenario, reducing bureaucratic processes, eliminating infrastructure barriers to investments, offering concessions of taxes, tax incentives, etc.

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How to Cite
Jumbo, B., & López, M. . (2020). Relationship between foreign direct investment and unemployment: An approach with co-integration techniques for CAN countries. Revista Económica, 5(1), 56–63. Retrieved from https://revistas.unl.edu.ec/index.php/economica/article/view/772
Issue
Vol. 5 No. 1 (2018): Revista Económica vol 5 (Julio-Diciembre 2018)
Section
RESEARCH ARTICLES
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