An Empirical Investigation of the Relationship Between Foreign Direct Investment and Unemployment Rate in Azerbaijan: An ARDL Approach

This paper aims to examine the effect of FDI on the unemployment rate in Azerbaijan from 1993 to 2022. The Augmented Dickey–Fuller (ADF) unit root test, Phillips-Perron (PP) unit root test, ARDL co-integration test, and Granger Causality test have been employed for the statistical analysis. The results of the ARDL approach indicated a significant relationship between FDI and the unemployment rate. The outcomes of the long-run analysis noted a negative and significant relationship between FDI and unemployment. In contrast, the short-run test showed a negative but insignificant relationship between FDI and unemployment. Moreover, the findings of the Granger causality test showed no causal link running from FDI to unemployment, meaning the null hypothesis that FDI does not Granger cause unemployment should be accepted. This suggests that FDI leads to employment in Azerbaijan. Conversely, a causal relationship running from unemployment to FDI was confirmed, indicating that the null hypothesis that unemployment does not Granger cause FDI should be rejected, and the alternative hypothesis that unemployment does Granger cause FDI must be accepted. This implies that the unemployment rate influences FDI inflow into the country. Hence, it has been demonstrated that FDI inflows decreased Azerbaijan's unemployment rate during the examined period.