Macroeconomic Determinants of Unemployment in Ethiopia: Time Series Analysis using Auto-regressive Distributed Lag Model

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Addis Ababa University


This study examined the macroeconomic determinants of unemployment in Ethiopia over a period of 1978 to 2018 by investigating the empirical relationship between unemployment (UN), real gross domestic product (RGDP), net foreign direct investment (NFDI), external debt (ED), real exchange rate (RER), inflation rate (INFR) and Proclamation that encourage private employment agencies as dummy variable (DM_LM) using Autoregressive Distributed Lag Model and Error Correction model (ECM). The result reveals that RGDP,NFDI and INFR) affect unemployment negatively in the short run while ED and RER have positive relation with unemployment and statistically significant at 5% level in the short run. However, in the long run, only RGDP and RER are negatively related with unemployment and statistically significant. The effect of economic growth is higher than other determinants in short run and long run. The ECM equilibrates the short run dynamics to the long run dynamics by the speed of 19.93%. The relationship between unemployment and inflation rate is negative in the short run and positive in the long run which implies Phillips curve exists only in the short run. It is recommended that policies and strategies focusing on increasing economic growth focusing on agriculture, improving trade balance through devaluing domestic currency relative to foreign currency, enhancing infant domestic industries instead of attracting FDI, reduce external loan, control inflationary problem, investing in modernizing labour market service provision are crucial and that government should give due attention to reduce unemployment in Ethiopia.


A thesis submitted to the department of economics in Partial fulfillment of the requirements for the degree of Master of Science in economics


Determinants, Macroeconomic, Unemployment