The purpose of this study is to examine the impact of inward foreign direct investment (IFDI) on employment generation in India, addressing a gap in existing research despite recent improvements in labour market indicators highlighted by the Indian Employment Report (2024).
This research uses annual time-series data from 1991 to 2016 and applies the Autoregressive Distributed Lag (ARDL) model to analyse both the short- and long-run dynamics between IFDI and employment in India.
The results of this study indicate that IFDI has a statistically significant and positive impact on employment, suggesting that foreign investment not only contributes to economic growth but also leads to job creation by crowding in employment opportunities.
One key limitation of this study is the unavailability of consistent and reliable data beyond 2016. Additionally, this study focuses on national-level aggregates and does not account for sectoral or regional variations in FDI impact. Future research could benefit from disaggregated data for a better understanding.
By identifying a positive link between IFDI and employment, this study underscores FDI’s potential to contribute to social stability through job creation. This is especially relevant in a country like India, where employment generation remains a key development challenge.
This study adds to the limited empirical literature on the employment effects of IFDI in India by focusing on long-term macroeconomic data and using the ARDL framework. This study provides new insights into how the quality and nature of FDI influence labour market outcomes, a dimension often overlooked in previous research.
