The Impact of Government Expenditures on Unemployment in (SAARC): South Asian Association for Regional Cooperation Countries

Abstract

Considering the great concern of unemployment globally, it is very important to discover the main clarification and a specific determinant of unemployment. This research is carried out to investigate the impacts of government expenditures on unemployment in (SAARC): South Asian Association for Regional Cooperation countries. The panel data analysis is used for the period of 26 years (1990 to 2016). The dependent variable is the unemployment rate and the independent variables are government expenditures, total investment, inflation, secondary education, political stability, human development index (HDI), total working female population between age 19-64, and total population growth. Multiple-regression is the assigned model and several estimations and diagnostic tests are used such as correlation matrix, VIF, model specification, autocorrelation, heteroscedasticity, unit root, cointegration test, ordinary least square (OLS), fixed effect, and random effect and Hausman test. The fixed effect was found the appropriate estimation using the Hausman test. Based on the results of fixed effect estimation, the first conclusion which can be put forward is that general government expenditures, total investment and secondary education were found both economically and statistically significant to reduce unemployment. Furthermore, inflation, total female working population between age 19 and 64, and total population growth were found both economically and statistically significant and it was discovered that these factors increase unemployment. Finally, political stability and HDI were found insignificant however the negative signs in this regression analysis are important so that is why they are not removed from the model. It is recommended that governments in the selected region should increase general government expenditures in investment, security, military, education and health sectors to reduce unemployment. Besides those, there should be a special focus on the increase of total investment and education in order to create jobs. On the other hand, governments should adopt policies to control inflation, the population of the working age female population and the growth of the total population which will help to reduce the rate of unemployment in SAARC countries.