Affiliation:
1. University of Novi Sad, Serbia
2. University of Novi Sad, Faculty of Economics, Serbia
Abstract
This paper examines, from the perspective of Post-Keynesian economics, the
effects of Foreign Direct Investment (FDI) on the employment rate in 18
post-transitional European countries from 1995 to 2021. Using a two-step
system Generalised Method of Moments (GMM) panel data estimator, we test the
hypothesis that the employment impact of investment depends on the
interaction of FDI and domestic investment in terms of crowding-in and
crowding-out relationships, assuming that this relationship is sensitive to
the sectoral distribution of FDI stock. Our findings suggest that the
reallocation of FDI inflows from the manufacturing sector to the less labour
intensive financial and information and communication technology (ICT)
sectors tends to reduce the employment effect of FDI both directly and
indirectly by reducing the magnitude of the crowding- in effect of FDI on
domestic investment. The outcome of our study is of great interest to
economic policy makers. If foreign investment displaces domestic investment
and reduces employment in high value-added sectors, policies intended to
attract foreign capital could be challenged and undermined. Otherwise, if
foreign and domestic investment in sectors with high added value are
complementary, it justifies policies aimed at attracting foreign investment.
Publisher
National Library of Serbia
Subject
General Economics, Econometrics and Finance