The effect of foreign direct investment on youth unemployment in Uganda

Abstract

This study investigates the role of FDI in mitigating youth unemployment. Using annual time series data for Uganda spanning the period 1991-2023, the study looked at youth unemployment as a dependent variable and FDI as an independent variable including other control variables. The Phillips Perron test found that some variables are integrated of order I(0) while others integrated of order I(1). The bound test found a long-run relationship between youth unemployment and FDI. The study then employed an Error correction model to estimate the long-term relationship between variables, and the results shows FDI has an insignificant effect on reducing youth unemployment in Uganda. Domestic investment, political stability are negative and significant resulting to reduced youth unemployment. While population, inflation and external debt has a positive relationship with youth unemployment. Therefore, findings draw attention to the importance of boosting domestic investments, which create more job opportunities, but also design policies that attract labor absorbing FDI. Enhancing political stability will also attract more investments, while managing inflation and external debt responsibly will prevent economic instability that can harm job growth among the youth.