An Econometric Analysis of Impact of Inflation and Economic Growth on Unemployment in Ethiopia

Résumé

The study examined the impact of inflation and economic growth on unemployment Ethiopia; for the period 1991-2018. Cointegration test, Error Correction Model (ECM) technique and Granger causality test were employed in the analysis. The variables utilized in the investigation include real gross domestic product (RGDP), inflation rate and unemployment rate. Stationarity test was conducted and the results indicated that all the variables except LNUNMPL and LNED were stationary at level; however, LNUNMPL and LNED became stationary after first differencing. The cointegration test result revealed that long run relationship exists among the variables under study. More so, ECM result showed that RGDP and inflation has negative and significant impact on unemployment. Finally, the Granger causality results indicated unidirectional relationship between UNEMP and RGDP, as well as between unemployment and inflation with causality running from RGDP to UNEMP and from inflation to UNEMP Based on the findings above, the study therefore, recommends that government should as a matter of urgency create more employment opportunities to absorb the teeming population of the unemployed labour force in the country through modernization of the agricultural sector, bring in modern equipment in the facilities of agriculture to make the sector more attractive to all citizens despite one’s qualifications and profession, as that alone would go a long way in reducing unemployment level in the country.

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