DETERMINANTS OF UNEMPLOYMENT:

A CASE STUDY OF PAKISTAN ECONOMY (1998-2008)

Presented by: Iftikhar Ahmed

 Abstract
• This study investigates the determinants of unemployment in the
Pakistan economy from 1998 to 2008 using the Simple Single
Equation Linear Regression Model (SELRM). Population growth,
inflation rate (CPI-based), and Foreign Direct Investment (FDI) are
utilized as explanatory variables.
• The findings suggest that population growth positively influences
unemployment, while inflation and FDI have a negative impact on
unemployment. The study also confirms a trade-off between inflation
and unemployment in the Pakistan economy.
 Introduction
• Unemployment remains a significant issue globally, affecting both
industrially advanced and developing countries.
• Defined as the condition of being without a job despite actively
seeking employment, unemployment poses various social and
economic challenges.
• This study focuses on analyzing the determinants of unemployment in
Pakistan, a country where high levels of unemployment have persisted
over the years.
• The research aims to shed light on the factors contributing to
unemployment in the context of Pakistan's economic conditions from
1998 to 2008.
 Literature Review
• Studies from Turkey, Russia, Ukraine, OECD countries, Taiwan, and
other regions provide insights into the complex relationships between
unemployment and factors such as population growth, FDI, inflation,
taxation, industrial diversification, and economic growth.
 Research Methodology
• The study employs a Simple Single Equation Linear Regression
Model (SELRM) to analyze the determinants of unemployment in
Pakistan.
• The model includes population growth, FDI, and inflation rate as
independent variables, with data sourced from economic surveys of
Pakistan for the period 1998-2008.
• The Ordinary Least Squares (OLS) technique is utilized for
estimation, with significance testing conducted using t-tests.
• The value of R-Square is close to 0.80 which indicate very well fit to
data. It means that about 80% changes are due explanatory variables
(PG, FDI, INR) and rest of 20% is due to error term.
• The value of F-test is also very highly significant which means that
overall model is well fitted. The value of d-statistic is 3.060 which is
very close to 4. It is perhaps suffer from negative autocorrelation.
• More research in this area can be related to inflation and
unemployment relationship (both long run and short run) and also
more econometrics work can be done to obtain more reliable
estimates.
 Results
• The empirical analysis reveals significant relationships between
unemployment and its determinants in Pakistan.
• Population growth is found to positively correlate with
unemployment, indicating that higher population growth exacerbates
unemployment levels.
• Conversely, FDI and inflation rate exhibit negative relationships with
unemployment, suggesting that increased FDI inflows and lower
inflation rates contribute to reducing unemployment.
 Conclusion and Recommendations
• Population growth emerges as a significant driver of unemployment,
while FDI and inflation play crucial roles in mitigating unemployment
levels.
• The findings imply the existence of a trade-off between inflation and
unemployment, necessitating further research to explore the
dynamics of this relationship.
• Policymakers should focus on strategies to manage population
growth, attract FDI inflows, and maintain stable inflation levels to
address the unemployment challenge effectively.
Thak you