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Assignment On Unemployment Problem

The document analyzes the relationship between economic growth, unemployment, inflation, and foreign direct investment in Bangladesh from 1991-2019. It finds that GDP growth, inflation, and foreign direct investment have statistically significant impacts on unemployment in both the short-run and long-run. Specifically, increases in GDP growth and foreign direct investment are found to decrease unemployment, while increases in inflation have a weaker negative effect on unemployment. The study recommends that Bangladesh stimulate GDP growth, attract more foreign investment, and use fiscal and monetary policy to manage inflation and unemployment rates.

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anisulislam asif
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52 views2 pages

Assignment On Unemployment Problem

The document analyzes the relationship between economic growth, unemployment, inflation, and foreign direct investment in Bangladesh from 1991-2019. It finds that GDP growth, inflation, and foreign direct investment have statistically significant impacts on unemployment in both the short-run and long-run. Specifically, increases in GDP growth and foreign direct investment are found to decrease unemployment, while increases in inflation have a weaker negative effect on unemployment. The study recommends that Bangladesh stimulate GDP growth, attract more foreign investment, and use fiscal and monetary policy to manage inflation and unemployment rates.

Uploaded by

anisulislam asif
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Assignment On:

Relationship Between Economic Growth and Unemployment in Case of Bangladesh

Unemployment is one of the key problems in many economies nowadays, especially in less
developed countries. Therefore, we study determinants of unemployment in Bangladesh over
1991-2019 using robust econometric analyses. As a result, we document that GDP growth rate,
inflation, and foreign direct investment flows have statistically significant impacts on
unemployment rate both in short-run and long-run. More specifically, we observe that
unemployment rate, GDP growth rate, inflation rate and foreign direct investment flows are co
integrated in long-run at 5% significance level. In order to examine short-run dynamics and
speed of long-run convergence, we have employed VECM analysis. This analysis reveals that
model Error Correction Term gets negative value at 1% significance level. Complying with the
ECM theory, it indicates that the model corrects 17.24% of its previous period disequilibrium in
each period. It shows that the model has 17.24% annual speed of convergence to its long-run
equilibrium. Thus, we conclude that it would take approximately 5-6 years to reach their final
equilibrium stance. The analysis also gives results for short-run dynamics of unemployment rate.
It shows that a unit increase in GDP growth rate decreases unemployment by approximately
0.0159 units in short-run at 1% statistically significance level. A unit increase in inflation rate
will lead approximately 0.004 units drop in unemployment rate at 10% significance level. It
complies with Phillips Curve, but it has a weaker significance in Bangladesh. In addition, we
also document negative and significant impact running from FDI to Unemployment in short-run.
Its multiplier indicates that a unit increase in FDI Flows will cause 0.005 units decrease in
unemployment rate in short-run at 5% Significance level.

The implications of this study show that economic growth rate, inflation rates, and foreign direct
investment flows have a significant impact on unemployment rate. The study offers some
recommendations, which are given below:

 Bangladesh can effectively decrease its unemployment rate by stimulating its GDP growth
rates.

 Bangladesh should focus on development of labor-intensive projects and consolidate with new
entrepreneurial entrants of current. Entrepreneurship operations to build more opportunities and
absorb a wide pool of unemployed people.

 The Phillips curve trade-off between inflation and unemployment appears valid in Bangladesh
but its significance is a bit weaker. The government can effectively use this trade-off in order to
control the unemployment rates. Fiscal and monetary policy makers need to formulate policies to
achieve the required inflation, which can affect the unemployment rate.

 The Foreign Direct Investment flows also another tool to decrease unemployment rates.
Through implementing the joint venture scheme, Bangladesh should attract foreign investments
and bring them into the country. It means also import of new technology and creation of new
employments. Thus, this will decrease unemployment rate gradually.

 Foreign direct investment generates employment, more socio-economic growth sectors such as
agriculture, education, IT, pharmaceuticals, fisheries, cattle farming, ready-made clothes,
electricity, gig economy, entrepreneurship, etc should be funded by the government of
Bangladesh, and private investors should also be allowed to spend more in the economy.

 It is important to prioritize foreign direct investment and domestic investment to reinvigorate


our economy. To some point, where we are less concentrated on it, our neighboring country
relies more on FDI. We should apply policies to develop our economy in order to keep pace with
the global trade pace. We have seen a vast influx of economic growth in Bangladesh in recent
years. Expecting potential researchers to improve FDI and the form of policies or interventions
that can raise FDI flows.

Reference:

https://ojs.tripaledu.com/index.php/jefa/article/view/57/69

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