The Impact of Foreign Direct Investment on Unemployment Rate in Malaysia

The issue of unemployment is vital for developed and developing countries. When high unemployment rate occur in a country that means the country economy is slowing down. The main concern of government is to solve and eliminate the unemployment issue from time to time. This study investigates the impact of foreign direct investment on unemployment rate in Malaysia. This paper examine the relationship between unemployment rate, foreign direct investment, inflation rate and real gross domestic product in Malaysia from year 1982 to year 2017 which consists of 36 observations by using time series data. This research employed several econometric models are applied such as Augmented Dickey Fuller (ADF) Unit Root Test, Johensen and Juselius Cointegration Test, Vector Error Correction Estimates, Granger Causality Test to analyse the relationships between variables. The findings of study found that foreign direct investment have a positive relationship with unemployment in the long run. In contrast, inflation rate and real gross domestic product have a negative relationship with unemployment rate in the long run. However, foreign direct investment, inflation rate and real gross domestic product will not affect unemployment rate in the short run.