Impact of FDI on Employment Level in Bangladesh: A VECM Approach

Abstract

This study is designed to investigate the role of Foreign Direct Investment (FDI) in overall job creation in Bangladesh where annual time series data is used spanning from 1991 to 2018. The role of gross domestic products (GDP) and trade openness on employment level are also addressed. Johansen-Juselius cointegration and Vector error correction model are performed to check long run relationship and short run dynamics among the variables. The findings show that there exists co-integrating relations among the variables. Both FDI and GDP have significant positive effect on employment but trade openness possess the negative impact on employment in the long run. But FDI is negatively related with employment in the short run. This paper suggests to concentrate on making efficient policies to attract investors in green field investment which means investing for the establishment of new firms to create job opportunities in a large scale and to give the opportunity and logistic support to the native producers to produce more import substituted goods for reducing import dependence tendency.