The Effect of Foreign Direct Investments on Unemployment: The Case of Turkey

Abstract

Many studies in the literature focus the positive contribution of foreign direct investments, especially in the economic growth process of developing countries' economies. However, there is no consensus on the effects of foreign direct investments on unemployment yet. Accordingly, in this study, the short and long-term relationships between foreign direct investment and unemployment in Turkey between the years 1988-2020 were examined. The findings of the study confirmed the views in the literature that "the effect of foreign direct investments on unemployment is positive", in other words, "direct foreign investments increase unemployment". In addition, according to the Granger causality analysis results, a one-way causality relationship from unemployment to foreign direct investments was observed. Considering the policies followed by Turkey after the January 24 decisions, foreign direct investments are not an element that can be easily abandoned for the country, as it increases the domestic production volume, implements technological innovations, and sets an example for domestic formations in many aspects. Additionally, it is thought to be at a very important point in terms of ensuring integration with the outside world. In this context, the study points out that in addition to encouraging foreign direct investments within the scope of stable growth, domestic investors should be supported in terms of the consistency of employment policies.