Job Creation and FDI: The Role of Economic, Social and Political Climate in Developing Countries

Abstract

This paper examines the link between job creation and foreign direct investment (FDI) at the company/project level and whether or not this relationship is influenced by the economic, social and political climate of the country. The focus is on developing countries. Using data at the project level, results show that, for some geographic locations, FDI has a positive and significant impact on job creation. This relationship is found to hold for projects in East Asia and South Asia and to some extent for Latin America as well. However, this relationship is reversed for projects in SubSaharan African and the Middle Eastern and Northern African countries implying a strong regional impact. Additionally, it was found that a lack of effective governance at the country level has a negative impact on job creation. Finally, the results relating to FDI are no longer significant after controlling for endogeneity. The results relating to the harmful impact of an ill-functioning or dysfunctional governance and socio-political environment on job creation remain invariant regardless of estimation specification or method. (O10; O15; J60; F65; F66)