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Examining the Impact of Foreign Capital Flows on Different Types of Unemployment in Small Open Economies: A Regression Analysis of Croatia and the Czech Republic

There is a significant volume of research studying the impact of foreign capital flows on unemployment. The investigated variables in this paper include remittance inflows, FDI, as well as tourism spending, while additional variables that may have an impact on the unemployment rate have also been included to minimize the risk of omitted variable bias. The paper investigates the impact of foreign capital inflows on three different types of unemployment: youth unemployment, unemployment of those without college degrees, and unemployment of those with degrees. The paper implements an OLS regression to analyse the impact of these variables in Croatia and the Czech Republic between 1997 and 2020. The paper concludes that remittance inflows have the most prominent role in decreasing the unemployment rate in Croatia. It further concludes that domestic factors and the growth of the aggregate economy, rather than foreign capital factors, are key determinants of the unemployment rate in the Czech Republic. The paper highlights the lacking contribution of educational spending on minimizing the unemployment rate and proposes that educational spending needs to reconsider the real- world demands of the labour market.

unemployment rate ; foreign capital flows ; dependency theory ; OLS regression ; youth unemployment

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