THE RELATIONSHIP BETWEEN THE FOREIGN DIRECT INVESTMENT (FDI) AND UNEMPLOYMENT IN BOLIVIA

There are several different data in Bolivia about unemployment. This memorandum analyzes the relationships between unemployment and foreign direct investment, and recommends policies that facilitate the conditions in order to get a long-term foreign investment in the country.
Unemployment is a major social problem in Bolivia that makes people emigrate to others countries. Millions of people in the last ten years have left their homes even separating from their families.
Besides, employment creates citizens with rights and gets the people out of the poverty. In Bolivia, more than 60% of the population is behind the poverty line.

ANALISIS AND ARGUMENTS

Some theorists believe that the relationship between investment and unemployment is clear and undisputable. An economic expansion consists of the building-up of capital. An increase in the desire to save causes the rate of interest to fall and investment to rise. Moreover, such capital accumulation entails more roundabout production processes when capital gets located to earlier production stages. A monetary expansion has the undesirable effect of lowering the rate of interest below its natural level, which makes genuine saving fall and forced saving and investment increase, hence causing an unsustainable boom that is invariably followed by a bust.
An artificial low rate of interest eventually gives a way to a high real rate of interest as overcommitted investors bid for increasingly scarce resources. During the boom period workers are increasingly employed in the earlier stages of production, while in the bust phase they are released from failing enterprises and unemployment rate goes up.
The foreign direct investment in Bolivia has increase extraordinary during the ‘90’s decade as a percentage of the GDP, from negatives rates to 12% of the GDP in the last year of the survey (2000).
Bolivia in the ‘90’s has the largest foreign direct investment in the Latin American region: accounting for a median of 10% of the GDP, with its GDP growth of 4% in the decade.
In this decade (2000’s), the foreign direct investment has decreased constantly to 8% of the GDP and the GDP growth rates have fallen too, to 3% per year.
Unemployment rates show us an increase during the last year of the ’90’s correlated with a decrease of the foreign direct investment.
In 1989 the FDI starts to be positive as a percentage of the GDP and the unemployment rates start to decrease from 10% to 3% in 1994. In the last year of the 90’s decade the mentioned rates start to back down to the positions of the 80’s: low foreign direct investment.
From rates of 12% the FDI starts to decrease in 2002 to rates of 5% of GDP.We have a strong correlation between unemployment and foreign direct investment (-0.685) with a high significance (0.061).
In this survey we can see that without FDI the unemployment would be about 10% of the labor force.
We also analyze the survey and found that the 54.6% of the unemployment is explained by the foreign direct investment. The regression analysis also shows us a high level of significance (0.036):

Unemployment Rate (% of total labor force) = 7.31% - 0.664% (FDI, %GDP) + e

In a poor country as Bolivia is, when there is not a mature market of capitals because they are scarce, the foreign investment is crucial to get high rates of GDP growth and low unemployment.
There is a necessity to seek strategies in order to create the conditions for a sustainable foreign direct investment, so that joining the public and private national investment Bolivia is going to decrease the present high unemployment rates.
There is a keen competition among developed and developing countries to attract foreign direct investment. This drive to lure investment often extends to the subnational level, with different regional authorities pursuing their own strategies and assembling their own baskets of incentives to attract new investments. Various reforms and strategies could be implemented. Some are critical of the high costs of many of these initiatives, arguing that it would be more rewarding to improve a country’s general business environment.
The resources gathered in this memo examine many different methods used by policymakers to attract FDI and their effectiveness. These approaches include:
Providing special fiscal incentives, such as tax concessions, cash grants, and specific subsidies;
Improving domestic infrastructure;
Promoting local skills development to meet investor needs and expectations;
Establishing broad-reaching FDI promotion agencies;
Improving the regulatory environment and decreasing red tape; and
Engaging in international governing arrangements.