Journal of Economics and Development, Vol. 24 No. 2, pp. 98-111. https://doi.org/10.1108/JED-06-2021-0082
Do foreign direct investments and bank credits affect employment in Uzbekistan?
The paper investigates the relationship between credit to the economy, foreign direct investment (FDI) and the unemployment rate in Uzbekistan using macroeconomic time series over 2004–2019.
The study estimates the relationship by applying a vector autoregression model, which is considered a “workhorse” model for policy analysis to capture dynamic relationships in economic time series.
The results suggest both growth in credit to the economy and FDI Granger cause a change in the unemployment rate. The authors found 1% increase in bank credits to the economy growth decreases the unemployment rate by 0.096 pp. over eight years. On the contrary, 1% positive shock to FDI growth increases the unemployment rate by 0.0036% in the context of Uzbekistan.
Uzbekistan should improve FDI absorptive capacity, particularly human capital and financial market development, through growth-enhancing structural reforms in the financial sector to stimulate economic growth and employment. The attracted FDI funds should focus on productive and economic sectors with high labor-absorptive capacity, such as financial and professional services, healthcare and biomedicine, creative industries and media, software sector.
The study contributes to the empirical literature on employment effects of FDIs and credit to the economy of Uzbekistan.
Keywords:Unemployment, Credits, Foreign direct investment, Absorptive capacity, Uzbekistan