Do foreign direct investments and bank credits affect employment in Uzbekistan?

Abstract

Purpose – 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. Design/methodology/approach – 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. Findings – 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. Practical implications – 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. Originality/value – 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