Impact of Foreign Direct Investment (FDI) on Unemployment in Somalia

Abstract

This study evaluates the impact of foreign direct investment (FDI) on unemployment in Somalia. To achieve this goal, a co-integration analysis of the Johansen and VAR models was conducted using annual data from 1991 to 2021. The results indicate that there is no significant long-term relationship between foreign direct investment net inflows and unemployment. Furthermore, the long-term and short-term effects of FDI on unemployment are not significant. Based on the findings, it can be concluded that FDI does not contribute to a reduction in the unemployment rate in Somalia. Therefore, governments in the region should aim to attract labor-absorbing FDI and channel foreign investment inflows towards labor-intensive sectors with high labor-absorptive capacity, such as horticulture and floriculture.