Foreign Direct Investment and Unemployment Rate in Uganda (1991-2017)

ABSTRACT The main purpose of this study was to investigate the effect of foreign direct investment on unemployment rate in Uganda from 1991 -2017. It was driven by two major objectives, which are to investigate if there is casual relationship between foreign direct investment and unemployment rate in Uganda and to examine the effect of foreign direct investment on unemployment rate in Uganda. The study used time series data in between 1991 to 2017 from the World Bank and Uganda Bureau of statistics and also both correlation and regression analysis statistical tools were employed to investigate and explain the effect of foreign direct investment on unemployment rate in Uganda using FDI as independent variable and unemployment rate as dependent variable. In this study it was found that FDI has a negative impact on unemployment. On average, this study concludes that unemployment has been decreasing from 1991 to 2017.The study also shows the FDI has been generally increasing in the recent years though with a lot of fluctuation. The correlation analysis showed that unemployment is negatively related to FDI implying that when FDI increases, unemployment decreases. According to the findings, the study suggests to encourage foreign direct investment in Uganda, because FDI regarded as the key factor that reduces unemployment of the country. Foreign direct investment FDI should be encouraged towards the industrial sector and more especially agricultural sector of the economy since agriculture is the backbone of the Uganda’s an economy. This study contributes that as a departure from the previous studies, firstly extra variables are included in this study. Secondly, ECM procedure was used to depict the speed of adjustment after a shock.