Do FDI and domestic investment affect unemployment in MENA countries? Dynamic panel data analysis

Abstract

Over recent decades, countries have been competing to attract foreign investments to benefit from the advantages they offer in financing economic development, providing modern technology and effective administrative methods, as well as providing job opportunities. In addition to the problems of financing development, Middle East and North African (MENA) countries experience high unemployment rates. We therefore believe that one way to overcome this issue is to bring in FDI as more investment provides new job opportunities. This article explores the dynamic relationship between FDI and domestic investment (DI) on unemployment in MENA countries using panel data for the period 2003‐18. The empirical analysis, based on the Seemingly Unrelated Regression (SUR) model, finds that FDI increases unemployment and domestic investment reduces it. Further, the findings show that the prominent determinant of unemployment rates is corruption.