The relationship between employment and investment : Theoretical aspects and empirical evidence for Italy

The relationship between employment and investment activity in Italy over the 1970-86 period is studied. A theoretical model is used showing that the overall effect of investment on employment can either be positive or negative depending on the relative strength of three individual components of such global effect. An empirical investigation which aims to look for a causal impact of investment activity on the employment rate is then undertaken. The results of stationarity tests on our time series show that a distinction is made between short-run and long-run considerations in the case of the industry sector; hence, cointegration and causality analysis for this sector was performed. In the case of the other sectors and regions, we have to content ourselves with only the cyclical dimension of the series. © 1993 Chapman & Hall Ltd. All rights reserved.