Macroeconomic Determinants of Unemployment in Ethiopia: Time Series Analysis
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Date
2025-05-26
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A.A.U
Abstract
The purpose of this paper was to examine empirically the long-run and short-run relationships
between unemployment and its macroeconomic determinants over 1993-2023, comprising
gross domestic product (RGDP), foreign direct investment (FDI), external debt (EXDE),
Government effectiveness (GOEF), and Political instability (POST) in the country. The World
Development Index (WDI), the International Labor Organization (ILO), annual reports, and
published research were the sources of the data. The Augmented Dickey Fuller (ADF) and
Philips-Perron (PP) tests are used to test the data for unit root, and the results indicate that all
of the study's variables are non-stationary at level and stationary in their initial differences.
Johansen cointegration analysis and the Error Correction model (ECM) testing methodology
were used in this investigation. The study's conclusions show a positive and significant
relationship between political instability and government effectiveness, a negative and
significant relationship between real GDP and foreign direct investment, and a short-term,
positive but negligible relationship between external debt and unemployment. In the long run
there is positive and statistically significant relationship between unemployment and gross
domestic products, foreign direct investment (FDI), external debt as well as negative and
significant relationship between Government effectiveness and Political instability in the
country for the period under examination. The study recommends that Ethiopia should use
proper planning and strategic policy interventions to achieve higher sustainable economic
growth with Real growth domestic product (RGDP) growth, foreign direct investment (FDI),
External debt (EXD), government effectiveness (GOEF) and Political stability (POST). Finally
the study suggests macroeconomic policies and strategies focusing on increasing economic
growth, focusing on agriculture, enhancing infant domestic industries instead of attracting FDI
and address the appropriateness of each economic sector for their attractiveness of unemployed
groups, reduce external loan and safe itself from external debt overhang, increase aggregate
supply and consolidate the existing entrepreneurship, with improved rule of law and
government effectiveness and should give due attention to reduce unemployment in Ethiopia.