Determinants of Unemployment in Ethiopia
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Date
2023-06
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Addis Ababa University
Abstract
The unemployment rate has been the most persistent issue in both developed and developing nations. Thus, all the relevant ideas, key factors, and concepts had been discussed at first including the macroeconomic factors that affect the unemployment rate in Ethiopia. This study is an attempt to investigate the determinants of unemployment in Ethiopia. The yearly data was used from the period 1990 to 2021. Unit root test is used to check the stationarity of the variables and employed Autoregressive Distributed Lag Model (ARDL) regression method. In Addition, Nonlinear ARDL model has been employed to detect the symmetric impact of different variables on unemployment rate in Ethiopia. When we come to the long run ARDL result all four variables namely (economic growth, real effective exchange rate, inflation and foreign direct investment) were a significant determinant of unemployment rate in Ethiopia. , in the long run, the lag of the natural logarithm of total unemployment has a positive and significant effect on the current unemployment level. The effect of economic growth on the level of unemployment in the long run, economic growth expressed as (natural logarithm of RGDP) has a negative and significant effect on the unemployment rate. Slow economic development dynamics will raise the long-term unemployment rate (non-employment growth). All variables except foreign direct investment affect unemployment rate negatively they decrease Unemployment, while foreign direct investment affect unemployment rate positively. Finally, the researcher recommended that the Ethiopian government should to consider in its policies and strategies to create more jobs and to efficiently utilize the abundant labor force available in the country. Moreover, the government authorities should efficiently utilize the capital resource generated locally or donations and grants from abroad (like the revolving fund) in job creation