The effect of FDI inflows on unemployment in Asian developing economies and the role of digitalization

Abstract

Asian developing countries make more effort to attract additional foreign direct investment (FDI) inflows to enhance economic growth and create more jobs. The FDI – unemployment relationship is a hotly debated topic between economists and policymakers. In the context of globalization with the high development level of the Internet, does digitalization contribute to this relationship? For the answer, the study employs individuals using the Internet and fixed broadband subscriptions as a proxy for digitalization to empirically examine the effects of FDI, digitalization, and their interaction on unemployment for a group of 32 Asian developing countries over the period 2002 – 2020. It applies the two-step and one-step difference GMM estimators and the PMG estimator. The results show that FDI decreases while digitalization increases unemployment, but their interaction reduces it. Furthermore, economic growth, trade openness, and governance are significant determinants of unemployment in these countries. The study suggests some implications for governments in Asian developing economies to develop information technology and the Internet to receive more FDI inflows and create more jobs.