Abstract
The purpose of this paper is to investigate the causality between good public governance captured through six World Bank governance indicators and unemployment rate (unemployment as % of the total labour force) as a clear indicator of labour market performance. Although some previous papers have empirically demonstrated the casual nexus between country-level governance and economic development, this study investigates the relation of causality between public governance and the labour market. By employing Granger non-causality tests, we tested two hypotheses with regard to this nexus. We argue that bidirectional Granger causality is predominant for the relation of country-level governance and unemployment. Finally, our paper offers a complex quantitative analysis of the causal nexus between public governance quality and one of the most known labour market activity indicators for an extended panel dataset of countries worldwide for 10 years.
Highlights
There is a wide range of previous studies in the academic literature concerning the linkage between country-level governance and various outcomes of economic development (Brinkerhoff and Goldsmith 2005; Kaufmann et al 2005; Demirguc-Kunt et al 2006; Jalilian et al 2006; Cule and Fulton 2013; Avram et al 2015; Boţa-Avram et al 2018), but too fewer studies about the nexus between country-level governance and unemployment rate as an indicator of a good labour market
Cule and Fulton (2013) argued that the significance of good governance for proper economic and business development is supported by the argument that one expects an economy with a minimum level of bureaucracy, with significant concern for the quality of the regulatory framework and implementing useful tools to manage the level of corruption adequately, will be able to ensure a proper business environment encouraging to sustainable economic development
According to Hypothesis 1–2 proposed to be tested in our study, the bidirectional causal nexus refers from UNEMP to GOV_AGV and vice versa
Summary
There is a wide range of previous studies in the academic literature concerning the linkage between country-level governance and various outcomes of economic development (Brinkerhoff and Goldsmith 2005; Kaufmann et al 2005; Demirguc-Kunt et al 2006; Jalilian et al 2006; Cule and Fulton 2013; Avram et al 2015; Boţa-Avram et al 2018), but too fewer studies about the nexus between country-level governance and unemployment rate as an indicator of a good labour market. Khraief et al (2020) argued that the labour market is heavily regulated, while the state intervention policies strongly influence job market training and employment program development. They noticed while taking in consideration the influence of some factors (such as mobility of capital, capital–labour substitution, and technology’s influence on the relocation of production), “it is not possible to think of a situation where the state is not actively intervening in the labour market” (Khraief et al 2020, p. 13)
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