The Relationship of Foreign Direct Investment and Unemployment Rate in the Philippines

Abstract

Unemployment is widely recognized as a crucial indicator of the country’s labor market performance and is known to be one of the most important problems in developing countries. On the other hand, foreign direct investment is known to significantly impact the country’s economy as it directly creates additional jobs in the local economy and indirectly increases local spending because the new employees purchase products and services. This study was conducted to determine the relationship between foreign direct investment (inflows and outflows) and the unemployment rate in the Philippines and to present its trend from the period 1980 to 2019. Data on foreign direct investment and unemployment rate in the Philippines from 1980-2019 were sourced from International Labour Organization published by the World Bank. The Ordinary Least Squares (OLS) regression analysis was used to analyze and determine the relationship between foreign direct investment and the unemployment rate in the Philippines. Results revealed that the foreign direct investment outflows variable significantly affects the unemployment rate, with p-values lower than the 5% significance level. Thus, this paper offers decision-makers and policy-makers ample information to make informed decisions about the foreign direct investment and unemployment rate in the Philippines.