Structural policies, FDI and economic stability effects on employment elasticities: case of emerging economies

The focus of this paper is centred on distinguishing between labour and product market policy (Lmp and Pmp) indicator’s role to empirically examine if foreign direct investment (FDI) and economic stability (GDPG volatility) effect the employment’s sensitivity to output fluctuations in 44 countries from Africa and Middle East Area over the period of 2000–2017. To address this objective, in the first step we provide by OLS the cross-sectional employment elasticities. Then, unlike previous studies, which are based only on linear specifications, this paper propose different nonlinear specifications to assess the floating marginal effect of the structural indicators. In a third step, each augmented nonlinear model is used to deduce the role of macroeconomic indicators. Based on U- or N-shaped floating marginal effect of only a single structural labour or product market policy (Lmp or Pmp), the Lmp indicator is found to have the important increasing impact on employment elasticities which depends on the initial policy condition. Based on augmented cubic model, to maximise employment responsiveness, structural policies have to be complemented by macroeconomic stability policies. Furthermore, the estimations confirm that FDI triggers aggregate employment elasticities and then employment follows the FDI promotions.