Effects of Foreign Direct Investment (FDI) on Bangladeshi Labor Market

Effects of Foreign Direct Investment (FDI) on Bangladeshi Labor Market

Growth is a primary agendum for all developing countries. Bangladesh is no exception in this trend. Prior to 1980s, the country could heavily rely on official foreign aid to address its resource scarcity, but with the dwindling availability of foreign aid and increasing global economic integration, the country now treats Foreign Direct Investment (FDI) as a potential stimulus for rapid growth. However, investment from abroad is not quite benign in the sense that it interacts with local parameters and can sometime create uncomfortable consequences, like employment loss. Since employment is a politically sensitive parameter this issue is addressed in the literature in some details. The focus of this paper is to investigate to what extent FDI creates an impact in the Bangladeshi labor market. Using annual data from 1991 to 2013 results show that there exits significantly positive relationship between unemployment rate and net inflows of FDI expressed as a percentage of GDP. This indicates that as the share of FDI to GDP increases it leads to a rise in the number of people unemployed which to some extent is uncomfortable though not unusual in literature.