WAS LATIN AMERICA CORRECT IN RELYING IN FOREIGN DIRECT INVESTMENT TO IMPROVE EMPLOYMENT RATES

Abstract

This paper examines the effect of foreign direct investment (FDI) on employment generation for a group of Latin American countries in the period 1980-2006. Using a dynamic panel model, which is estimated with the Arellano-Bover/Blundell-Bond system estimator, I find that FDI has a positive and significant effect on the employment generation in host countries, which is driven by its effect on male labor force. This positive effect is particularly important for less developed economies, periods with low inflation, and for the later period of the sample, but suggests that only countries with high level of informality and those attracting low average inflows of FDI accrue this benefit.

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