Abstract
Developing countries like Pakistan face a host of economic problems in the form of stagnant exports, low economic growth, inadequate private investment, and inefficient utilization of foreign direct investment. Given these problems, we have examined macroeconomic factors impact on unemployment in Pakistan from 1967 to 2018. We also tested the proposed hypotheses through “VAR, fully modified least squares, and Granger causality tests.” Our results suggest that exports did not stimulate jobs in Pakistan. Perhaps, Pakistan needs to diversify its exports by focusing on non-conventional value-added goods. The results also indicate that although FDI and government expenditures have created jobs, they are below expectations. Although we found that private investment has helped job creation, the effect is small compared to other developing countries. Furthermore, we find that macroeconomic factors have had little impact on unemployment in the long run.
Highlights
Despite the world economy’s growth, the economic disparity between developed and developing countries has increased significantly
The results suggest that foreign direct investment (FDI) had increased unemployment in Argentina and Turkey, but the data does not support the association between unemployment and FDI in Thailand
The results suggest that at lag 2, FDI affects the unemployment in Pakistan
Summary
Despite the world economy’s growth, the economic disparity between developed and developing countries has increased significantly. Policymakers, especially in developing countries, are focusing on decreasing the unemployment rate of youth. Only a few empirical studies are Volume 15, Issue 2 December 2020 available that may help developing countries’ policymakers address the issue of youth unemployment (Pi & Chen, 2016; Liang, 2017; Yavas & Malladi, 2020). Compared to other South Asian countries, Pakistan’s economic growth is dismal, and most of the local population are earning below the poverty line. High production costs, stagnant exports, and political uncertainty have contributed to Pakistan’s slow economic growth (Qazi, Raza & Sharif, 2017).
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