The Impact of Economic Growth and Inflation on Unemployment: An Empirical Study in ESCWA Region

Document Type : Research Paper


Department of Economics, Faculty of Business Administration, Beirut Arab University, Beirut, Lebanon


High unemployment is a major economic problem. In Escwa region, the high unemployment rate has many causes that differed between member countries. Most governments’ policies usually aim to increase growth rates without reducing unemployment. This study studies the impact of economic growth on unemployment in 16 countries belonging to the ESCWA region for the period 1991-2017. The difference method, the gap method and the dynamic approach were employed to study the relationship between economic growth and unemployment levels. Results showed that the dynamic model was the most suitable. The panel unit root tests were used to assess whether series were stationary at level. Results showed that the total unemployment rate was non-stationary at the level, while the other economic growth variable was not. In contrast, all differenced terms of both variables were stationary at 5% significant level. The EGLS (Cross-section SUR) techniques were used because of their robustness to contemporary heteroscedasticity and cross-section dependence. The fixed effect (Panel EGLS/Cross-section SUR) was used. Explanatory variables explained the level of unemployment that was about 48.3%. GDP had a 0.4% decrease and a significant effect on unemployment. Previous periods also affected unemployment (lag variables). The Okun’s coefficient was 0.4%; this explained how a 1% increase in GDP growth caused a 0.4% decrease in the unemployment rate, whereas 0.06% was the intercept term which can be defined as the unemployment rate associated with zero GDP growth.