CORRELATIVE ANALYSIS BETWEEN EMPLOYMENT AND THE ENTRY OF FDI IN REPUBLIC OF MACEDONIA AND SELECTED EU COUNTRIES

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1 International Journal of Economics, Commerce and Management United Kingdom Vol. IV, Issue 1, January ISSN CORRELATIVE ANALYSIS BETWEEN EMPLOYMENT AND THE ENTRY OF FDI IN REPUBLIC OF MACEDONIA AND SELECTED EU COUNTRIES Elsana Aqifi State University of Tetovo, Macedonia Raimonda Duka University of Tirana, Albania Abstract Currently, countries with economies in transition are facing many economic and social problems, where one of the most serious problem is unemployment. There are numerous factors affecting employment, but as a very important factor may be calculated the increase of Foreign Direct Investments in the country. Therefore, the aim of this paper is to show the correlative analysis between employment and the entry of FDI in the Republic of Macedonia and some EU countries since 2000 in Based on the results of this paper, correlative analysis between employment and FDI in the Republic of Macedonia shows a significant positive correlation between these indicators. Macedonia with coefficient of determination 2d r = 0.433, indicating that 43% of employment is dependent on the inflow of Foreign Direct Investment in the country and 57% by other factors. This paper instructs us to see; what are the competitive advantages for attracting FDI in the Republic of Macedonia, like a road or very important opportunity to increase employment. Keywords: Macroeconomics Problems, Employment, FDI, European Union, Correlation INTRODUCTION During the last, most countries face the problem of unemployment. Unemployment and employment are two antipodes operating among them. While employment has not increased sufficiently to economic growth, we have greater unemployment. There are numerous factors decreasing unemployment and increasing employment, but as a very important factor may be Licensed under Creative Common Page 13

2 Aqifi & Duka calculated the increase of Foreign Direct Investments in the country. Numerous studies have been done to show the relationship between employment and the entry of FDI. Mickiewicz, Radosevic and Varblane (2000) showed that the bigger diversity of types of FDI is more favorable for the host economy. There is higher potential that it will lead to more diverse types of spillovers and skill transfers. If policy is unable to maximize the scale of FDI inflows then policymakers should focus much more on attracting diverse types of FDI. Ramirez (2001) has shown that the technology transfers to Mexican economy from the parent companies are capital intensive in nature, resulting in a limitation in the long term employment creation in the automobile industry. However, in contrary to negative impact, the study by Ernst (2005) shows the concern of positive employment impact on the domestic economy. Concerning chemical products, an analysis of employment data of major TNCs confirms the relatively positive employment impact. The figures are relatively less favorable for Mexico. To get more profits, foreign investors restructured their 11 production mode earlier than did domestic enterprises. So the extensive use of machinery and division of labor led to more existing workers losing their jobs (Mark & Engels, 2002), and in this process the foreign enterprises also created a more productive workforce. Lee and Vivarelli (2004) point out that even if trade and FDI are expected to positively affect employment, employment creation cannot be automatically assured, as the employment effect can be very diverse in different areas of the world. Spiezia (2004) finds that the impact of FDI on employment is increasing with per-capita income for a group of 49 countries, but its effect is not significant for low-income developing countries. Mou (2007) argued that in the initial stage FDI is mainly labor-intensive, with positive effects on employment, but, because the competitive position of domestic enterprises is relatively weak, the negative effects of FDI on job creation are also important. Federico and Alfredo (2007) assessed the impact of Italy s outward foreign direct investment (FDI) on local (domestic) employment growth between 1996 and 2001 for 12 manufacturing industries and 103 administrative provinces. Their main result was that, controlling for the local industrial structure and area fixed effects, FDI is associated with faster local employment growth, relatively to the national industry average. They also found that employment in small plants was not negatively influenced by higher levels of FDI. Their findings didn t support the idea that FDI was detrimental to local employment growth in the home country. Ndikumana and Verick (2008) investigated a key channel of the impact of FDI on development is through its effects on domestic factor markets, especially domestic investment and employment. In this context, they analyzed the two-way linkages between FDI and Licensed under Creative Common Page 14

3 International Journal of Economics, Commerce and Management, United Kingdom domestic investment in Sub-Saharan Africa. Their results suggested that firstly, FDI crowds in domestic investment, and secondly, countries will gain much from measures aimed at improving the domestic investment climate. Moreover, they identified alternatives to resource endowments as a means of attracting foreign investment to non-resource rich countries. Sjöholm (2008) studied the relationship between FDI and technology and found a clear linkage between the employment and technology. On the one hand, new technology may make firms more competitive which permits them to grow and employ more workers. On the other hand, new technology may also decrease demand for labor by substituting the low skilled employees with fewer high skilled employees. Hence, the change of technology policies will affect the job creation. Moreover, firm ownership also is an important part of the job creation in the economy. METHODOLOGY For this research paper is using the Coefficient of determination and the Correlation coefficient of employment and FDI in Macedonia and some EU countries. These coefficients best express the interdependence between these variables. Economic theory and empirical analysis has found that there is interdependence between employment and foreign direct investment. In the analyzed period of in several countries of the EU and Macedonia there is a relatively strong link between these two variables. Interdependence between these variables will count through parabolic regression functions and Coefficient of determination and the correlation coefficient, that best express the interdependence between these variables. These coefficients are calculated according to the following formula. Coefficient of Determination R 2 = (Ŷi Ý )² (Yi Ý )² Coefficient of determination expresses the adaptability of the data with the regression line. Yi represents the estimated function, Y represents the average value of the variable Y and Yi represents the value of the dependent variable for years. Correlation Coefficient: R = r 2 d R= + r 2 d when b is positive R = - r 2 d when b is negative Licensed under Creative Common Page 15

4 Aqifi & Duka General Regressive Parabolic Function Y = a + bx + cx² Variables calculated in the above function are made from actual data on employment and foreign direct investment in the country and in some countries of the European Union in the period , are presented in the following tables: Table 1: Employment in the Republic of Macedonia and some EU countries in the period , ( ) Years Finland France Greece Germany Italy Slovenia* UK Macedonia* *persons Source: International Monetary Found, World Economic Outlook Database, October WIR.UNCTAD, FDI/TNC database, Enti Shtetëror Statistikor i Republikës së Maqedonisë, Raport i tremujorit të IV,No , më datë Table 2: The entry of FDI in Republic of Macedonia and some UE countries for the period , ( )$ Years Finland France Greece Germany Italy Slovenia UK Macedonia* *Million denar Source: International Monetary Found, World Economic Outlook Database, October WIR.UNCTAD, FDI/TNC database, Enti Shtetëror Statistikor i Republikës së Maqedonisë 2010, Banka Popullore e RM-së Licensed under Creative Common Page 16

5 International Journal of Economics, Commerce and Management, United Kingdom ANALYSIS AND RESULTS Correlative analysis between employment and entry of FDI's in Macedonia and in some EU countries Interdependence between employment and foreign direct investment in the country in the country and in some countries of the European Union provided through functions regressive parabolic below, which feature in most cases give a clearer picture about the interdependence of variables: Finland Employment = 2, FDI FDI + ² France Employment 24, = FDI FDI + ² Germany 39, employment = FDI - FDI ² Greece Employment = 4, FDI - FDI ² Italy Employment = FDI - FDI ² Slovenia Employment = FDI FDI + ² M.Bashkuar Employment = FDI FDI ² Macedonia 525, employment = FDI Calculated by regressive parabolic functions between employment and the entry of foreign direct investments in the country, we see that in the analyzed period from in most countries' economies of the EU employment and foreign direct investments have correlation, which means that, with the growth of FDI's in their economies, employment has increased during this period. This report has had a different intensity in different countries. An inverse relationship observed only in Finland in proportion (1: ) and in Slovenia in proportion (1: ) which means that the economy of Finland and Germany, with the growth of foreign direct investment in the country, employment decreased these proportions, but in function parameter c shows a symbolic increase investment in these countries in recent years. But in all other countries surveyed, including Macedonia expressed a positive dependency of employment and foreign direct investment in the country, which means that the economies of these countries have to increase foreign direct investment in the country to reach employment growth in these countries. Because parabolic regression model of the impact of FDI's in Macedonia was not significant and did not reflect economic reality, we are building linear regression. According to this function calculated in Macedonia ratio (1: ) shows that the growth of FDI's for 1 monetary unit, employment will increase by 0.4 units. Regarding the regression dependence of employment and foreign direct investment in the country which is expressed through coefficients of determination and alliance, generally within the analyzed period and there is a relatively strong dependency between employment and direct investment foreign country. Licensed under Creative Common Page 17

6 Aqifi & Duka Of all countries analyzed in this period slightly larger regression dependence between these two variables observed in Finland at a rate of determination r 2d = 0.690, meaning that employment during the period analyzed was hung 69% from the entry of Foreign direct investment in the economy of Finland and 31% by other factors not included in the survey (r2 = = 0,310 x 100 = 31%). Then follows Slovenia with coefficient of determination r 2d = 0526 shows that 52.6% of employment is dependent on the inflow of foreign direct investment and 47.4% of the other factors, Greece coefficient determination r 2d = 0.480, shows that 48% of employment is dependent foreign direct investment and 52% by other factors; Macedonia 2d r = 0.433, indicating that 43% of employment is dependent on the inflow of foreign direct investment in the country and 57% by other factors; Italy r 2d = 0319 shows that 31.9% of employment is dependent on the inflow of foreign direct investment and 68.1% of the other factors, France r 2d = 0,341, with 34.1% of employment is dependent on foreign direct investment in the country and 65.9% of the other factors. And finally, smaller dependence regression employment of foreign direct investments in the country from these countries analyzed in the period since has UK with 2d r = 0.197, with a 19.7 depending on the employment of.% the entry of foreign direct investments in the country and 80.3% by other factors as well as Germany with 2d r = 0,073 depending employment with 0.73% of the inflow of foreign direct investment in the country and 92.7% by other factors. While correlation coefficients show the connection that had these countries between employment and investment in the analyzed period since The correlation coefficients of these countries show a relatively strong link between employment and foreign direct investment in the country. The correlation coefficients between employment and FDI's in Greece in 0693 and r = r = Macedonia show a strong relationship between these variables. But in France with r = 0584, Italy r = 0564, and the UK with r = 0444 shows a correlation relatively strong between employment and FDI's, while in Germany r = shows a correlation little these variables, and Finland r = and Slovenia r = a negative correlation. CONCLUSION Employment, except that represents the level of economic development of a country, there are also positive effects in all life areas where optimal employment creates preconditions for stability overall, since it is the bearer of all social changes, whether positive or negative. Especially countries with economies in transition are facing many economic and social problems, where one of the most serious problems presents unemployment. There are numerous factors decreasing unemployment and increasing employment, but as a very important factor may be Licensed under Creative Common Page 18

7 International Journal of Economics, Commerce and Management, United Kingdom calculated the increase of Foreign Direct Investments in the country. Numerous studies have been done to show the relationship between employment and the entry of FDI. Calculated by regressive parabolic functions between employment and the entry of foreign direct investments in the country, we see that in the analyzed period from in most countries' economies of the EU employment and foreign direct investments have correlation, which means that, with the growth of FDI's in their economies, employment has increased during this period. This report has had a different intensity in different countries. Macedonia expressed a positive dependency of employment and foreign direct investment in the country, which means that the economies of these countries have to increase foreign direct investment in the country to reach employment growth in these countries. Because parabolic regression model the impact of FDI's in Macedonia was not significant and did not reflect economic reality, we are building linear regression. According to this function calculated in Macedonia the proportion (1: ) shows that the growth of FDI's for 1 monetary unit, employment will increase by 0.4 units. Regarding the regression dependence of employment and foreign direct investment in the country which is expressed through coefficients of determination and alliance, generally within the analyzed period and there is a relatively strong dependency between employment and foreign direct investment in the country. Macedonia 2d r = 0.433, indicating that 43% of employment is dependent on the inflow of foreign direct investment in the country and 57% by other factors. The correlation coefficients of these countries show a relatively strong link between employment and foreign direct investment in the country. The correlation coefficients between employment and FDI's in Macedonia r = show a strong relationship between these variables. Republic of Macedonia has a low level of FDI compared to other countries in the region and compared to UE countries, because of: the stalemate in the implementation of structural reforms of the economy, failure to carry out reforms in the area of legislative, malfunctioning right and not updating the judiciary, the presence of organized crime and corruption, and the political instability political, black economy, the functioning of monopolies, etc. Macedonia should improve the situation and attract more investment by providing a more secure climate for foreign investors. REFERENCES Altzinger.W and Bellak.C (1999), Direct Versus Indirect FDI: Impact On Domestic Exports And Employment, Working Paper No.09, Vienna University of Economics and Business Administration (WU). Anastasia. F, Labour markets in the Western Balkans, Challenges for the future. Luxembourg: European Training Foundation, 2007 Licensed under Creative Common Page 19

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