A Rethinking the state of causality from Foreign Direct Investment to employment in East African Community sub-region
DOI:
https://doi.org/10.59645/abr.v13i1.3Keywords:
Employment, East Africa, Granger-Causality, FDIAbstract
The EAC countries have had long history of reforming and strategizing policies in order to boost FDI inflows so as to create both low and high-skilled employment, facilitating technology diffusion and access to international markets. This paper thus applied Granger-Causality test to investigate whether FDI inflows in five countries (Kenya, Tanzania, Uganda, Rwanda and Burundi) of East African Community have any significant impact to the rate of employment. Employment rates as the percentage of total employment in four categories which include three sectors of industry, agriculture and service; together with country’s employment to population ratio for people over fifteen years in each country were analyzed against FDI net inflows as the percentage of GDP. Pearson correlation coefficients and corresponding test statistics were performed as preliminary analyses to assess the degree of relationship between FDI and employment in each category. Granger-causality test was later employed to examine the extent of causality relationship. The general findings indicate that causality from FDI to employment in Kenya and Tanzania is insignificant in all sectors, while is significant in only industrial sector in Uganda and to aggregate employment to population ratio in Burundi. Only Rwanda has indicated significant causality in all but agricultural sector. The paper therefore calls for policy re-examination in the countries to tap the potentials of FDI inflows in addressing the excess of labor supply, taking into account sectoral preferences.
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