VOLUME-2,ISSUE-2,AUGUST-31,2018,Page-58-76
ARTICLE
Econometric Test on Growth-Unemployment Nexus in India
Dr.Debesh Bhowmik
http://journals.umt.edu.pk/sbe/jqm
ABSTRACT
Generally, the
economic growth boosts employment growth rate
but empirical
evidences do not support these views in all cases.
In this paper,
the author endeavors to relate growth with
unemployment
rate during 1991-2016 in India using regression
models, Granger
Causality test, Johansen Cointegration test and
Vector Error
Correction model. Impulse response functions were fitted for testing stationary. Unit
circle was found out to check stability of the Vector Error
Correction. Output gap is measured by deducting Hodrick-Prescott
Filtered trend value from the actual output.Unemployment gap
is measured by deducting natural growth rate of
unemployment from the actual unemployment rate. The data on Indian unemployment
rate, growth rate and GDP from 1991 to 2016 have been taken from the World Bank. The paper concludes that
growth-unemployment nexus is significantly negative at 10% level. Their
relation is not causal but is co-integrated at 10% level. VECM is stable and
non-stationary where in one error correction process the speed of adjustment is
high and significant. The relation between output gap and unemployment is
negative and insignificant. They are not co-integrated and have no causality. The
nexus between output gap and unemployment gap is significantly negative but the
relation has no causality and co-integration. VAR model is a good fit where
variables are related with previous periods. The relation between growth and unemployment
gap is insignificantly negative and co-integrated where VECM is stable but non-stationary
and one speed of adjustment is significantly fast and other is insignificantly
slow in error correction process.
