Impact of foreign direct investment on employment in Zimbabwe: Paper prepared for the conference on Economic Integration, Entrepreneurship and Sustainable Development held at Midlands State University, Zimbabwe on 14-16th October, 2015

Abstract

Despite the theoretical argument that FDI creates employment opportunities in the host country, empirical evidence provides mixed results. Against this background, the study has examined the impact of FDI on employment in Zimbabwe using annual time series data that spans from 1985 to 2012. The study employed a multivariate linear regression model which was estimated by the Stock and Watson Dynamic Ordinary Least Squares (DOLS) technique to control for endogeneity and simultaneity. To avoid spurious regression, time series data was subjected to unit root tests using the Augmented Dickey Fuller test. The results of this exercise revealed that majority of the variables follow a non-stationary process. The Engel Granger method was then used to test for cointegration to determine whether the non-stationary variables shared a common stochastic trend. Basing on the residual which was stationary, it was concluded that the variables moved together in the long run. The results from the dynamic model revealed that FDI has a positive and significant long run effect on employment in Zimbabwe. Other variables that affected employment are population growth and GDP. The results of this empirical test corroborate the fact that FDI stimulates economic performance in developing countries. Therefore, the government of Zimbabwe is advised to pursue policies that attract FDI into the country such as reviewing the indigenization policy to make attractive and to quicken the introduction of Special Economic Zones.