Journal of Economics and Financial Analysis, 4 (2), pp. 45-61, [2020]
URI: https://ojs.tripaledu.com/jefa/article/view/57/69

Relationship between Unemployment and Macroeconomics Aggregates: Evidence from Bangladesh


Jahangirnagar University, Bangladesh


Prince Mohammad Bin Fahd University, Saudi Arabia


Jahangirnagar University, Bangladesh


DOI: http://dx.doi.org/10.1991/jefa.v4i2.a36

Abstract

This paper examines relationship of unemployment rates with other macroeconomic aggregates in Bangladesh over 1991-2019 using robust econometric analyses. It sheds a light on the fact that GDP growth rate, inflation, and foreign direct investment flows have statistically significant impacts on unemployment rate both in short-run and long-run. More specifically, the paper documents that unemployment rate, GDP growth rate, inflation rate and foreign direct investment flows are co-integrated in long-run at 5% significance level.
Using Vector Error Correction analysis, the paper finds that co-integrated series converge it their long-run equilbruim at a speed of 17.24% per annum at 1% significance level. In case short-run, the study finds that a unit increase in GDP growth rate decreases unemployment by approximately 0.0159 units in short-run at 1% statistically significance level. Likewise, a unit increase in inflation rate will lead approximately 0.004 units drop in unemployment rate at 10% significance level. Plus, it also observes that a unit in Foreign Direct Investment flows causes 0.005 units decrease in unemployment rate in short-run at 5% significance level.

Keywords

Unemployment Rate; Economic Growth; FDI; Inflation Rate; Co-integration.

JEL Classification

B22, B23, E24, E26, E31, J24, R23.

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