IMPACT OF FOREIGN DIRECT INVESTMENT ON UNEMPLOYMENT IN GHANA

Janet Akuba Shelle

Master's thesis

Abstract:

There is a great deal of controversy regarding the link between foreign direct investment (FDI) inflows and the unemployment rate. While some studies show FDI leads to economic growth, others indicate the opposite. As part of the study, standard time series econometric tools are used to establish the effect FDI has on Ghana's employment rate, which includes augmented Dickey-Fuller (ADF) and Phillips Perron (PP) unit root tests, cointegration testing with autoregressive distributed lags (ARDL) and short-run relationship testing with Error Correction Model (ECM). Additionally, the study analyses gross domestic product (GDP) and inflation rates as control variables. The analysis made use of yearly data from 1991 through 2021. According to the research, foreign direct investment has a significant impact on Ghana's unemployment rate. It follows that there will be an increase in job opportunities created by FDI, thereby reducing Ghana's unemployment rate. As inflation impacts unemployment in an inverse manner, an increase in inflation will reduce unemployment. Moreover, increases in the gross domestic product will contribute to the decline in unemployment, as the gross domestic product had a significant impact on the decline in unemployment. Thus, it is advised that Ghana implement benevolent policies to encourage foreign direct investment to support sustainable economic growth.

Abstract:

There is a great deal of controversy regarding the link between foreign direct investment (FDI) inflows and the unemployment rate. While some studies show FDI leads to economic growth, others indicate the opposite. As part of the study, standard time series econometric tools are used to establish the effect FDI has on Ghana's employment rate, which includes augmented Dickey-Fuller (ADF) and Phillips Perron (PP) unit root tests, cointegration testing with autoregressive distributed lags (ARDL) and short-run relationship testing with Error Correction Model (ECM). Additionally, the study analyses gross domestic product (GDP) and inflation rates as control variables. The analysis made use of yearly data from 1991 through 2021. According to the research, foreign direct investment has a significant impact on Ghana's unemployment rate. It follows that there will be an increase in job opportunities created by FDI, thereby reducing Ghana's unemployment rate. As inflation impacts unemployment in an inverse manner, an increase in inflation will reduce unemployment. Moreover, increases in the gross domestic product will contribute to the decline in unemployment, as the gross domestic product had a significant impact on the decline in unemployment. Thus, it is advised that Ghana implement benevolent policies to encourage foreign direct investment to support sustainable economic growth.

Keywords

Foreign Direct Investment, Unemployment, Inflation, Autogressive Distributed Lag -Error Correction model(ARDL-ECM), Gross Domestic Product

Keywords

Foreign Direct Investment, Gross Domestic Product, Inflation, Unemployment, Autogressive Distributed Lag -Error Correction model(ARDL-ECM)

Language used: English

Date on which the thesis was submitted / produced: 25. 12. 2022

Thesis defence

• Date of defence: 31. 1. 2023
• Supervisor: Karel Brůna
• Reader: Kateřina Šímová

Vysoká škola ekonomická v Praze

Master programme:
Finance and Accounting