The Impact of Foreign Direct Investment on Unemployment: Evidence from Selected ASEAN and East Asian Countries

Abstract

This study investigates the impact of Foreign Direct Investment (FDI) on unemployment in ten ASEAN and East Asian economies during the period 2010–2024. While FDI has long been regarded as an important driver of economic growth and industrial development, empirical evidence regarding its labor-market effects remains inconclusive. Existing studies have produced mixed findings, suggesting that the employment consequences of FDI depend on country-specific economic and institutional conditions. Using balanced panel data from China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, this study employs panel-data estimation techniques, including Common Effects, Random Effects, and Fixed Effects models. Model selection procedures indicate that the Fixed Effects Model provides the most appropriate specification due to substantial cross-country heterogeneity. The analysis further incorporates institutional variables to evaluate the role of governance quality and regulatory effectiveness in shaping employment outcomes. The empirical findings reveal that FDI exerts a negative and statistically significant effect on unemployment. However, the magnitude of this effect varies considerably across countries according to institutional quality, industrial structure, and labor-market characteristics. Economies characterized by stronger governance, regulatory predictability, and greater absorptive capacity experience larger employment gains from foreign investment than countries with weaker institutional frameworks.