Foreign direct investment and employment creation in Ghana: a panel data analysis from 1997-2012

Abstract

This study examined the effect of Foreign Direct Investment (FDI) on employment creation in Ghana using panel data covering the period 1997 to 2012. The study employed Pedroni co integration, Johansen panel test and the Granger No-causality test procedure suggested by Toda and Yamomanto to empirically examine the relationships and directional relationships between FDI and employment creation. The study employed two controlling variables namely exchange rate and GDP growth. The study results reveal that foreign direct investment relates positively with employment creation. It was also revealed that there is a negative relationship between employment creation and exchange rate. GDP growth also relates positively with employment creation both in the long run and short run. Furthermore, there was no causality flowing from employment creation to FDI and Exchange rate. However unidirectional causality was established between GDP growth and employment creation.Based on the findings and conclusions, policy recommendations are worth noting that the negative relationship between exchange rate and employment growth means that high exchange rate may present deleterious effects to employment creation in the various sectors of Ghana’s economy.