The Impact of Consumption and Investment on Unemployment in Pakistan

Abstract

The aim of this study is to inspect the effect of investment and consumption on unemployment rate (UEM) in Pakistan and used the data from 1975-2020 and ARDL techniques to estimate the long run (LR) and short run (SR) results. This study found that the GDP growth (GDPG), gross capital formation (GCF), final consumption expenditure (PCE), and inflation rate (INF) have a significant and negative effects on UEM in the long-run. However, the GDPG, GCF, final consumption expenditure, and inflation rate have an insignificant consequence on UEM in the short run. Furthermore, the FDI has a significant and negative effect on unemployment rate in the LR and SR. Similarly, the granger causality test results indicated that there is no causality exist in between UEM and GDPG, unemployment rate and GCF, and UEM and final consumption expenditure, while, there is two-way causality exist in between UEM and GDP growth. There is unidirectional causality exist in between UEM and inflation rate, running from unemployment to inflation rate. Therefore, this study concluded that increase in the investment and consumption has significantly decreased the unemployment rate in Pakistan.  This study recommended that government increase the employment opportunities to increase investment and consumption expenditure.