FDI, digitalization and employment: empirical evidence from developing economies

Abstract

Purpose

The paper aims to empirically examine the impact of foreign direct investment (FDI) inflows and digitalization on employment opportunities in selected 70 developing economies across the world over the period of 2001–2019. The same empirical investigations are also carried out on two groups of these developing countries created on the basis of the levels of FDI inflows and digitalization.

Design/methodology/approach

The study uses various panel unit root tests followed by the estimations of the generalized method of moments in the dynamic panel framework, using secondary data collected from the World Bank (2020), International Labour Organization (2020) and International Telecommunication Union (2020).

Findings

Empirical findings reveal that both FDI inflows and digitalization have positive effects on employment; however, the extent of the impact of digitalization is greater than that of FDI inflows in developing economies, mostly in countries with relatively low FDI inflows and low digitalization.

Originality/value

Conventionally, FDI inflows accelerate economic growth and thus improve the labour market in host countries. However, FDI inflows into developing countries with low-skilled labours may limit job creation, particularly during the process of digitalization. This study shows that despite a much moderate impact of FDI inflows, digital transformation supports a higher employment in developing economies with low level of FDI inflows and digitalization.

Citation

Sinha, M., Tirtosuharto, D., Ray Chaudhury, A. and Basu, P. (2023), "FDI, digitalization and employment: empirical evidence from developing economies", Studies in Economics and Finance, Vol. 40 No. 4, pp. 740-756. https://doi.org/10.1108/SEF-10-2021-0450