Does foreign direct investment lead or lag employment ? an ARDL approach

The aim of the paper is to investigate and analyse the short-run and long-run relationship between employment levels and foreign direct investment(FDI) using the ARDL approach in South Africa. The South African economy is designed in a way that it endorses FDI inflow for all sectors of the economy to ensure growth and creation of jobs, like all other free market economies. The primary focus was to ascertain if FDI influx contributes to employment creation in the perimeters of the South African economy. The results from the ARDL utilising error correction model and variance decomposition suggest that FDI has an insignificant negative relationship with unemployment rate in the of South African context. The interesting inference from the results is that inflation rate is the most exogenous variable, clearly indicating that the authorities should look at inflation (not FDI) in order to enhance employment creation since employment is driven by inflation and followed by FDI. The study would thus recommend that the authorities should better manage the inflation rate as the South African Reserve Bank already employs inflation targeting.