Long Term Effect of Economic Growth on Unemployment Level: In Case of Pakistan

Abstract

This study investigates the long term impact of economic growth on unemployment of Pakistan, from 1990 to 2006, using ARDL bounds testing approach to cointegration. The estimated result shows the existence of significant long run negative effect of economic growth on unemployment levels, whereas, in short run no relationship is observed. A one percent increase in economic growth is associated with reduction in the unemployment level by 1.665 percent in the long run. The coefficient of short run parameters is insignificant. The ECM term shows high speed of adjustment as 83 percent short run disequilibrium adjusts in a year. Pakistan should attempt to increase its economic growth, which will reduce its unemployment in the long run.

Key word: Unemployment, Economic Growth, Okuns’ Law, ARDL approach to cointegration, Pakistan