CAN FOREIGN DIRECT INVESTMENT (FDI) REDUCE UNEMPLOYMENT IN HOME COUNTRIES? ANALYSIS FOR ASEAN 5

Foreign direct investment (FDI) is considered a strategic policy to reduce unemployment in the host country. Through multinational companies, it is expected to be able to absorb new workers so that they can reduce the unemployment rate. Some studies show that FDI is not only related to capital transfers but also provides several key benefits such as reducing unemployment, transferring technology and managerial capabilities. But the benefits are again questioned, both for developing countries and for developed countries. Some studies have found that FDI can reduce unemployment but other studies have also found different things. So that the interrelationships between foreign direct investment and the unemployment rate are not fully clarified. This study aims to analyze the effect of FDI on the labour market in ASEAN 5. This research focuses on 5 founding countries of the Association of Southeast Asian Nations (ASEAN), namely Indonesia, Singapore, Malaysia, Thailand, and the Philippines. This study uses a series of Vector Error Correction Model (VECM) analyzes to analyze the effect of FDI on unemployment rates, both in the long and short term in each ASEAN 5 country. Through the Impulse Response Function (IRF) test in VECM analysis, it can also analyze the impact of FDI shocks on fluctuations in the unemployment rate. The data used is annual data covering the years 1975-2016. The results show that FDI can reduce unemployment in ASEAN 5 countries, but this result is only seen in the long term. While through the IRF it was explained that the results were different in each country.