Impact of FDI on Employment Generation: Nexus in Afghanistan

This study aims to analyze the effect of foreign direct investment (FDI) on new job creation, and pays attention to factors interrelated to employment by using the case of Afghanistan. Using time series data form 2003 to 2017, this paper explore the driving forces and reduction potentials of employment in Afghanistan with consideration for dynamic changes within the traditional OLS and standardize OLS model. The results show that exchange rate plays a dominant role in increasing employment in Afghanistan. And exports and inflation rate plays a dominant role in decreasing employment in Afghanistan. All variables are co-integrated and the analysis of the impulse response function and variance decomposition turns out to be synchronous. Furthermore, in the short run export and inflation rate are more critical in reduction potentials of employment in Afghanistan. Policies should be advised to control inflation rate and illegal export and improve the investment projects to attract more FDI into the economy for quick adjustment purpose in case of the shock to the system.