The effects of foreign direct investment on employment: The case of Turkey

Abstract

While theories examining the effects of foreign direct investment on employment generally claim the positive effect of FDI, some empirical studies provides reverse evidence. In this study the effect of FDI on employment in Turkey is investigated employing panel data test and estimation methods and using annual data for the period 1992-2006 for four sectors. Having done panel data unit root and panel co-integration tests, the results of panel co-integration model reveals that FDI negatively affects employment for the sectors and in the period considered. In addition, sector specific estimations imply that, among the four sectors, FDI inflows to manufacturing sector have the biggest negative impact on employment. These results are expected for economies such as Turkey in which large part of FDI inflows occurs in the form of merger with and buying of established firms since FDI inflows theoretically have a positive effect on employment when FDI inflows results in a new investment.