Economic Growth & Unemployment Relationship: Evidence from Sub-Saharan Africa

Abstract

Examining the economic growth-unemployment nexus in Sub-Saharan Africa from 2000 to 2021 was the main objective of the study. The study used both static panel data estimation methodologies (Random effect and fixed effect models) to estimate a balanced panel data. In the study, variables including GDP—a widely used proxy for economic growth—the unemployment rate, FDI, trade openness, inflation, the manufacturing sector, the agricultural sector, and the service sector were all used. AGRIC, MANU, and SERV variables are stationary at first difference, while GDP, UNEMP, FDI, TRADE, and INF variables are stationary at levels. The Granger causality test results showed a unidirectional relationship between unemployment (UNEMP) and gross domestic product (RGDP), with the economic causation running from GDP to UNEMP. The study found out that there is a negative linkage between economic growth and unemployment thus an increase in agricultural production will reduce unemployment in Sub-Saharan Africa, assuming all other variables remain constant. The estimated impact of the service industry on unemployment as a share of GDP is also shown to be positive. There is an inverse link between FDI and unemployment, suggesting that an increase in FDI has an impact on unemployment development. The paper recommends that the government should invest in agricultural modernization and the acquisition of cutting-edge machinery in order to increase participation in agriculture among all segments of the population. High rates of tariff and non-tariff obstacles continue to be a problem for many African countries. Efforts to increase trade should also focus on eliminating these obstacles. Policymakers should devise measures that support and encourage rapid and sustainable economic growth to foster a growth rate that is beneficial to the economy. This study did not estimate other significant variables including labour market institutions (unemployment benefits, employment protection legislation, etc.) due to a lack of data for several SSA nations