Investigating the Role of Foreign Direct Investment on Youth Unemployment Rate in Indonesia
DOI:
https://doi.org/10.21512/bbr.v14i2.8486Keywords:
Foreign Direct Investment (FDI), youth unemployment, IndonesiaAbstract
Youth unemployment is a contemporary socioeconomic problem in many countries. Although it is a negative phenomenon, this number can be translated into different perspectives as it offers plenty of available job force not only in terms of age and easily adaptable workers but also opportunities for low-wage workers. Unfortunately, despite having a high Foreign Direct Investment (FDI) and economic growth rate, Indonesia still suffers from the youth unemployment problem. The research observed a relationship between youth unemployment and FDI in the case of Indonesia from 1991 until 2019. Because of a different situation faced by female and male workers, the research also extended the impact of FDI into gender-specific effects. Data were from World Development Indicator (WDI) in 1991-2019. The short- and long-run situations were analyzed using the Auto-Regressive-Distribution-Lag (ARDL) technique. Based on the findings, it is found that in the short run, FDI can increase youth unemployment in Indonesia. This situation can be due to the reallocation industry, which requires workers’ adjustment. However, in the long run, FDI significantly reduces youth unemployment. Therefore, it concludes that FDI in Indonesia can provide employment opportunities for young people. Next, FDI is found to have a negative and significant effect on female youth unemployment. Meanwhile, there is no significant effect found in male youth unemployment.
Plum Analytics
References
Ahmed, E. M., & Kialashaki, R. (2021). FDI inflows spillover effect implications on the Asian-Pacific labour productivity. International Journal of Finance & Economics, 28(1), 575–588. https://doi.org/10.1002/ijfe.2437
Alkofahi, K. (2020). The effect of foreign direct investment on the unemployment rate in Saudi Arabia. International Journal of Economics and Finance, 12(10), 1–10. https://doi.org/10.5539/ijef.v12n10p1
Arfah, A., & Putra, A. H. P. K. (2019). Analysis of productivity and distribution of female workers in FB’s industries. Journal of Distribution Science, 17(3), 31–39. https://doi.org/10.15722/jds.17.3.201903.31
Awad, A. (2019). Economic globalisation and youth unemployment–Evidence from African countries. International Economic Journal, 33(2), 252–269. https://doi.org/10.1080/10168737.2019.1604787
Awad, A., & Youssof, I. (2016). The impact of economic globalisation on unemployment: The Malaysian experience. The Journal of International Trade & Economic Development, 25(7), 938–958. https://doi.org/10.1080/09638199.2016.1151069
Buana, Y., Hidayat, D., Prayogi, B., & Vendy. (2017). The effect of entrepreneurship education on entrepreneurial intention of university students by adopting Linan model. Binus Business Review, 8(1), 67–75. https://doi.org/10.21512/bbr.v8i1.1958
Hasan, Z., & Sasana, H. (2020). Determinants of youth unemployment rate in Asean. International Journal of Scientific & Technology Research, 9(3), 6687–6691.
Hisarciklilar, M., Gultekin-Karakas, D., & Asici, A. A. (2014). Can FDI be a panacea for unemployment?: The Turkish case. In T. Dereli, Y. P. Soykut-Sarica, & A. Şen-Taşbaşi (Eds.), Labor and employment relations in a globalized world: New perspectives on work, social policy and labor market implications (pp. 43–70). Springer.
Imtiaz, S., Ali, A., Khan, Z., Ullah, M., Khan, M., & Jacquemod, J. (2020). Determinants of youth unemployment in Pakistan. International Journal of Economics and Financial Issues, 10(5), 171–177. https://doi.org/10.32479/ijefi.10386
International Labour Organization. (2020). Global employment trends for youth 2020: Technology and the future of jobs. Retrieved from https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_737648.pdf
Jamielaa, M., & Kawabata, K. (2018). Trade openness and gender wage gap : Evidence from Indonesia. Journal of International Cooperation Studies, 26(01), 25–39.
Khan, I., Xue, J., Zaman, S., & Mehmood, Z. (2022). Nexus between FDI, economic growth, industrialization, and employment opportunities: Empirical evidence from Pakistan. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-022-01006-w
Kim, J. (2019). Does foreign direct investment matter to domestic entrepreneurship? The mediating role of strategic alliances. Global Economic Review, 48(3), 303–319. https://doi.org/10.1080/1226508X.2019.1635037
Mazhar, R., & Wei, Z. (2020). Foreign direct investment, international trade, and formation of entrepreneurial class. International Journal of Innovation, Management and Technology, 11(3), 88–93. https://doi.org/10.18178/ijimt.2020.11.3.881
Michael, E., & Geetha, C. (2020). Macroeconomic factors that affecting youth unemployment in Malaysia. Malaysian Journal of Business and Economics (MJBE), 7(2), 181–205. https://doi.org/10.51200/mjbe.vi.2890
Mkombe, D., Tufa, A. H., Alene, A. D., Manda, J., Feleke, S., Abdoulaye, T., & Manyong, V. (2020). The effects of foreign direct investment on youth unemployment in the Southern African Development Community. Development Southern Africa, 38(6), 863–878. https://doi.org/10.1080/0376835X.2020.1796598
Monari, F. N., Tinega, R., & Agasa, L. O. (2020). Modelling economic determinants of youth unemployment using multiple linear regression : A case study of Kenya. International Journal of Statistics and Applied Mathematics, 5(6), 7–11.
Narayan, P. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37(17), 1979–1990. https://doi.org/10.1080/00036840500278103
Nxazonke, B., & Van Wyk, R. B. (2020). The role of Foreign Direct Investment (FDI) on domestic entrepreneurship in South Africa. Development Southern Africa, 37(4), 587–600. https://doi.org/10.1080/0376835X.2019.1667751
OECD. (2019). Indonesia education at a glance. Retrieved from https://www.oecd.org/education/education-at-a-glance/
Onifade, S. T., Ay, A., Asongu, A. A. S., & Bekun, F. V. (2020). Revisiting the trade and unemployment nexus: Empirical evidence from the Nigerian economy. Journal of Public Affairs, 20(3). https://doi.org/10.1002/pa.2053
Peluffo, A. (2015). Foreign direct investment, productivity, demand for skilled labour and wage inequality: An analysis of Uruguay. The World Economy, 38(6), 962–983. https://doi.org/10.1111/twec.12180
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Pham, A., Poole, J. P., & Santos-Paulino, A. U. (2021). Foreign investment and female employment in Viet Nam. Transnational Corporations, 27(3), 133–155. https://doi.org/10.18356/2076099x-27-3-9
Saleem, H., Shabbir, M. S., & Bilal Khan, M. (2020). The short-run and long-run dynamics among FDI, trade openness and economic growth: using a bootstrap ARDL test for co-integration in selected South Asian countries. South Asian Journal of Business Studies, 9(2), 279–295. https://doi.org/10.1108/SAJBS-07-2019-0124
Sharma, S. (2021). The impact of foreign direct investment on gender inequality in India. Transnational Corporations, 27(3), 39–59. https://doi.org/10.18356/2076099x-27-3-5
Siegmann, K. A. (2006). Globalisation, gender, and equity–Effects of foreign direct investment on labour markets in rural Indonesia. European Journal of Economics and Economic Policies: Intervention, 3(1), 113–130.
Siregar, T. H. (2020). Impacts of minimum wages on employment and unemployment in Indonesia. Journal of the Asia Pacific Economy, 25(1), 62–78. https://doi.org/10.1080/13547860.2019.1625585
Sitompul, T., & Simangunsong, Y. (2019). The analysis of the impact of GDP, FDI, minimum wage on employment in Indonesia. International Journal of Management, Entrepreneurship, Social Science and Humanities, 2(2), 53–62. https://doi.org/10.31098/ijmesh.v2i2.17
Statistics Indonesia. (2019). Tingkat pengangguran terbuka berdasarkan kelompok umur 2017-2019. Retrieved from https://www.bps.go.id/indicator/6/1180/2/tingkat-pengangguran-terbuka-berdasarkan-kelompok-umur.html
The World Bank. (2019). GDP growth (annual %). Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?view=chart
The World Bank. (2020a). Foreign direct investment, net inflows (% of GDP). Retrieved from https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS
The World Bank. (2020b). Unemployment, youth total (% of total labor force ages 15-24) (Modeled ILO estimate). Retrieved from https://data.worldbank.org/indicator/SL.UEM.1524.ZS
Thioune, T., & Kane, C. S. (2018). Youth employment and economic growth in WAEMU countries. Journal of Economics and Development Studies, 6(4), 162–173. https://doi.org/10.15640/jeds.v6n4a14
UNCTAD. (2019). Global foreign direct investment slides for third consecutive year. Retrieved from https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2118
UNICEF. (2020). The state of children in Indonesia. Retrieved from https://www.unicef.org/indonesia/sites/unicef.org.indonesia/files/2020-06/The-State-of-Children-in-Indonesia-2020.pdf
Yeboah, E., Agyei, D. B., Li, R., Sossoe, A., Tetteh, M., & Amankwa, A. (2022). The significance of foreign direct investment registered projects and employment creation in the sectors of Ghana’s economy. Asian Journal of Economics and Empirical Research, 9(1), 59–66. https://doi.org/10.20448/ajeer.v9i1.3876
Downloads
Published
Issue
Section
License
Copyright (c) 2023 Olivia Tanaya, Suyanto
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors who publish with this journal agree to the following terms:
a. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License - Share Alike that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
b. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
c. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
USER RIGHTS
All articles published Open Access will be immediately and permanently free for everyone to read and download. We are continuously working with our author communities to select the best choice of license options, currently being defined for this journal as follows: Creative Commons Attribution-Share Alike (CC BY-SA)
