Central European Business Review 2022, 11(3):1-16 | DOI: 10.18267/j.cebr.291

Can Investment Incentives Cause Unemployment? An Empirical Analysis of The Relationship Between FDI and Employment Based on The OLI Framework

Tomáš Evan ORCID...1, Ilya Bolotov ORCID...2
1 Czech Technical University, Faculty of Information Technology, Department of Software Engineering; University of New York in Prague, School of Business, Prague, The Czech Republic, tomas.evan@fit.cvut.cz
2 Prague University of Economics and Business, Faculty of International Relation, Department of International Economic Relations, Prague, Czech Republic, ilya.bolotov@vse.cz

Particularly in depressed regions, politicians often use unemployment as the main argument for investment incentives provided to MNCs. This paper applies Dunning’s OLI Framework to the relationship between FDI and employment, assuming that political negotiation between MNCs and the host government might have a zero or negative effect on employment. Since the last letter of OLI, internalisation, suggests that MNCs optimise all production factors available to them and “subsidies” provided to MNCs by governments decrease the relative price of capital, MNCs may use more labour-saving techniques. Two hypotheses are tested using the dynamic panel model (DPD) and Granger causality tests for 193 countries from 1985–2019, where the first is supported with no strong relationship between the variables.
Implications for Central European audience: The paper results suggest the importance of a critical debate on the efficiency of investment incentives. This paper is among the first trying to disentangle the rather complex issue of FDI and employment on a theoretical and econometric level.

Keywords: foreign direct investment; unemployment; OLI; panel data
JEL classification: C23, E24, F21

Received: July 10, 2021; Revised: September 5, 2021; Accepted: September 7, 2021; Prepublished online: September 28, 2021; Published: July 18, 2022  Show citation

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Evan, T., & Bolotov, I. (2022). Can Investment Incentives Cause Unemployment? An Empirical Analysis of The Relationship Between FDI and Employment Based on The OLI Framework. Central European Business Review, 11(3), 1-16. doi: 10.18267/j.cebr.291
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