The Impact of Unemployment on Economic Growth in China

Munich Personal RePEc Archive

The Impact of Unemployment on Economic Growth in China

Karikari-Apau, Ellen and Abeti, Wilson

Shandong University, Parliament of Ghana

24 May 2019

Online at https://mpra.ub.uni-muenchen.de/96192/

MPRA Paper No. 96192, posted 28 Sep 2019 08:07 UTC

ABSTRACT

Economic growt h which is considered as one of t he best indicat or of measuring t he robust ness of every economy is essent ial in underst anding its relat ionship wit h unemployment which is an import ant macroeconomic indicat or t hat reflect s t he incompet ence of any economy t o make full use of it s human resources.

Hence, a macro-economic secondary and t ime series dat a was ext racted from t he World Development Indicat or (WDI) for t he period of 1991-2018 in China. In conduct ing t he economet ric analysis of t he st udy, bot h t he Augment ed Dickey-Fuller Test and Phillips Perron Test were employed t o test and confirm t he st at ionary level of t he variables of st udy; t he Aut oregressive Dist ribut ed Lagged (ARDL) coint egrat ion and t he ARDL Bounds t est were employed t o t est for t he short -run and t he long-run coint egrat ion of t he variables of st udy since bot h variable were st at ionary at first difference I (1).

The finding of t he st udy reveals t hat t here are negat ive short -run and a long- run relat ionship bet ween unemployment and economic growt h. However, Granger causalit y Test also reveals t hat bot h unemployment and economic growt h do not impact each ot her.

Keywords:

Granger causalit y, Economic growt h, Unemployment rat e, St ationarity and Coint egrat ion

INTRODUCTION

This scet ion will provide some brief informat ion on t he subsect ion t it les of t he chapt er. It det ails t he background of st udy, t he problem st at ement, and t he object ives of st udy, t he research quest ions, t he significance of t he st udy and, t he limit at ion and t he scope of t he st udy.

Background of the Study

Unemployment is one of t he crucial variables t o consider in underst anding the micro and macro dynamics of most economies and developing st rat egic plans t o st abilizing t he economies of most nat ions in order t o enhance economic growt h and development . Unemployment is considered as one t he worst sit uat ion any human societ y can experience since it affect s in different dimensions and direct ions (Al-Habees & Rumman, 2012).

According t o Akut son, Messiah, & Dalhat u (2018), unemployment is a serious predicament confront ed by most developed and developing nat ions which leads t o economic and social issues. The economic issues of unemployment is denying t he nat ion of t ax revenue in t he form of income t ax, wast age of product ive hours and many ot hers while t he social issues of unemployment had t o do wit h depression, lack of self-respect , and ot her vices such as robbery, prost it ution and many ot hers (Adarkwa, Donkor, & Kyei, 2017). More so, Al-Habees & Rumman (2012) also st at ed t hat unemployment is a mult i- dimensional phenomenon compassing economic and social phenomenon

which shows t he disparit y in economic act ivit y and consequence on t he social st ruct ure of societ ies as a social act ivit y.

The nat ure of unemployment is dependent on t he st ructures of t he count ry and t he cat egory of which t he count ry fall under whet her it is developed, developing or undeveloped (Soylu, Çakmak, & Okur, 2017). Anghel, Anghelache, & Manole (2017) explain t hat unemployment as a macroeconomic indicat or reveals t he inept it ude of a count ry t o ut ilise its abundant labour resources. This shows t hat t here are many act ive people who are readily available, searching and capable of adding t o product ivity output but cannot get a job t o do (Yilmaz, 2005). The I nternational Labour Organisat ion (ILO) defines unemployment based on t hree (3) important condit ions of which must be meet simult aneously and t hese condit ions are; not working, ready t o get employed and searching for a job (ILO, 2019).

Hussmanns, Mehran and Verma (1990, p. 97) post ulat ed t hat unemployment encompass all individuals who meet t he recommended age t o engage in economic act ivities and meet s t he condit ions of wit hout work, t hat, individuals, are not self-employment or who are not engaged in any job t hat fet ches t hem income; current ly available for work, t hat is, individuals who are readily available t o be engaged any income earn job or employment and; seeking work, t hat is, individuals who are making an effort t o get income-earning job or employment .

The classical t heory explains t hat unemployment is a short t erm demand and

maximum occupat ion in t he economy (Banda, Ngirande, & Hogwe, 2016). The Keynesian t heory holds t he view t hat unemployment is normally t riggered by insufficiencies in t ot al demand over specific periods wit hin t he labour market such t hat adequat e jobs are creat ed t o accommodat e people who want to work (Keynes, 1936). The Marxist t heory also explains t hat unemployment is as a result of t he capit alist syst em where t he means of product ion are owned by t he bourgeoisie and t he prolet ariat are exploit ed t hereof t hrough alienat ion and t hat unemployment can be reduced by replacing t he capit alism with the socialism (Gyang, Anzaku, & Iyakwari, 2018).

Economic growth is generally defined as a variation in a nation’s Gross

Domest ic Product (GDP) which is analysed as various cont ribut ions made by t he populace in consonance wit h nat ional income or capit al (Piket t y, 2014).

According t o (Jhingan, 2003), economic growt h is t he procedure by which t he real income per person of a nat ion rises over an ext ensive period of durat ion, which is det ermined t hrough t he rising in product ivity out put (goods and services manufact ured) in a nat ion. Economic growt h is considered as one of t he ut most imperat ive fiscal t ools for plummet ing povert y as well as improving t he eminence of life (DFID, 2008). Hence, product ion of much goods and improved services wit hin cont inues t ime period serves as t he basis of increasing prosperit y and reducing t he disparit y of revenue delivery among people in a broader perspect ive (Ademola & Badiru, 2016).

The Mercant ilist s st ipulat es t hat core object ives of economic act ivities of t raders and t he st at e and a rise in t he gross domest ic product are embedded

in t he accumulat ion of wealt h (McDermot t, 1999). Adam Smit h also described economic growt h as not accumulat ions of gold but rat her from t he act ivities of t rade, where part ies t o t he exchange of goods are sat isfied wit h his or her benefit and t hat market generally regulat e t hemselves wit hout any rest rict ions which lead t o nat ural equilibrium (Smit h, 1776).

However, Al-Habees & Rumman (2012) apprised t hat fiscal or monet ary policy object ive of t he most economic policy of most nat ions is t o increase economic progress and also improve t he qualit y of life of it s publics. Gross Domest ic Product (GDP) is one of t he import ant component in calculat ing economic progress is in consonance wit h ot her component s such as unemployment rat es, public spending, inflat ion, local and foreign invest ment and balance of t rade which in one way or t he ot her have t heir own peculiar cont ribut ion to economic growt h of developed, developing and underdeveloped nat ions (Boldeanu & Const ant inescu, 2005).

The influence of unemployment on economic growt h (Gross Domest ic Product ) has long been a pert inent quest ion in most economies (Quy, 2016).

Reducing unemployment and increasing economic growt h of a count ry is one t he essent ial macro-economic issues confront ing most developed, developing and underdeveloped nat ions in cont emporary t imes. The robust ness of every st rong nat ion is measured by it s economic growt h wit h unemployment as one of t he imperat ive macroeconomic variables which reveal t he abilit y of a republic t o make full use of it s labour resources (Soylu, Çakmak, & Okur, 2017;

Hobijn, 2010).

A lot of st udies have shown t he presence of cont radict ory findings on t he relat ionship t hat exist among unemployment rat e and economic progress rat e. This makes it difficult t o generalise t he findings of such st udies and also helps in making a predict ion on ot her economies (Set h, John, & Dalhat u, 2018).

Okun’s law elucidates two essential empirical relat ionship bet ween unemployment rat e and economic progress rat e: periodical variat ions in t he rat e of unemployment were linked t o periodical variat ion in t he rat e of economic progress, and nonconformit ies in t he rat e of unemployment were also linked t o nonconformit ies in t he rat e of economic progress from t heir apex level (Daly & Hobijn, 2010).

In limit ing unemployment , economic growt h as a key macro-economic indicat or has been acknowledging as a significant variable t hat can help resolve t he menace of unemployment (Al-Habees & Rumman, 2012). The cont ribut ion of higher economic growt h rat e t o development of t he nat ion and not t o t alk of unemployment cannot be undermined but however, it plays a vit al role in every economic development . It is a means t hrough which t he issues of unemployment can be abridged t o help reduce povert y in a count ry.

Progress in t he economy offers t he podium for emerging businesspersons t o be born and on t he ot her hand, serves as a means t hrough which unemployment can be absorbed t hrough t he creat ion of jobs.

1.2 Problem Statement

The most pert inent priorit y of most developed and developing nat ions is decreasing level of unemployment t hrough policies plans which seeks to increase t he desire in ent repreneurs t o creat e more jobs in order for t he nat ion t o realize great economic progress (Al-Habees & Rumman, 2012). Enormously, economic growt h and unemployment are among t he most significant macro- economic variables and indispensable fundament als in every st rat egic economic fiscal and monet ary policies of every prosperous economy (Soylu, Çakmak, & Okur, 2017).

Haller (2012) assumes t hat an upsurge in product ivity out put affect t he rat e of unemployment t o reduce since an upsurge in t he number of services and product s manufact ured wit hin a nat ion at a part icular durat ion shows an increase in product ion will require addit ional human capit al t o meet t he available product ion. According t o Sat o (1964), t here is an equal influence in increasing out put of product ion and subsequent influence of increase employment based on t he nat ure of available income and t hat t he sit uations surrounding t he availabilit y of income for product ion are expressed as t he economic growt h rat e. The equilibrium among growt h rat es would warrant full occupat ion for unemployed persons and full ut ilisat ion of income st ock in t he long t erm.

According t o Zhang & Wu, China’s achievement of an annual gross domestic product growt h of about 10% wit hin t he last decade is a massive improvement

decades. They also st at ed t hat an influent ial fact or t o t his achievement is an increased populat ion growt h of China, which involunt ary creat es room for larger human capit al st ock wit h diverse professional skills and abilit ies which is keen t o an increase in product ivity out put of every nat ion (Zhang & Wu, 2018).

Zhu also described China’s transformation from one of the poorest nations in

t he world t o an economic giant has no hist orical precedent s. He assert ed that wit hin 1978, China was cat egorised as one t he deprived republics in t he world wit h a real per capit a GDP of one-fort iet h t hat of t he Unit ed St ates of America and one-t ent h of t hat of Brazil. However, wit h an improved real per capit a GDP of about 8% per annum have transformed China’s economy to have a real

per capit a GDP of one-fift h of t he Unit ed St at es of America and at par with Brazil real per capit a GDP (Zhu, 2012).

A st udy by Li and Liu (2012) on t he relat ionship bet ween Chinese unemployment rat e, economic progress and inflat ion aft er employing an annual dat a from 1978 t o 2010 revealed t hat t here was mut ually short t erm and long t erm st able equilibrium relat ionship among unemployment , economic progress and inflat ion, t heir st udy also confirms t hat economic progress is adversely correlat ed t o t he unemployment rat e in t he absence of ext ernal fact ors. But in t he short -run economic growt h is posit ively relat ed to t he unemployment rate which violates the Okun’s law. The Granger causality t est reveals t hat t he presence of only a one-way Granger causat ion bet ween economic progress and being wit hout a job and t hat being wit hout a job does

not impact economic progress but economic progress rat her influence a change in unemployment .

However, t here are several invest igation st udies on t he relat ionship of unemployment and economic progress but t here is inconsist ency in t he findings of t hese st udies which some researchers at t ributes t he inconsist ency in t he findings t o ot her fact ors. Moreover, t here is a lit t le available lit erat ure on unemployment sit uat ions in China in spite of China’s massive improved economy. Therefore, it is imperat ive for a st udy of t his nat ure be carried out in ot her underst and t he influence of being wit hout a job on economic development of cont emporary China economy which will also add t o t he available lit erat ure.

1.3 Study Objective

Generally, t he aim of t he st udy is t o det ermine t he impact of unemployment on economic growt h in China. More so, t he st udy seeks t o specifically;

1. Analyse t rends in China’s unemployment and economic growt h rat e.

2. St udy t he long-run co-int egrat ion of China’s unemployment and economic growt h.

3. St udy t he short -run co-integration of China’s unemployment and economic growt h.

4. Examine causal linkages t hat exist among China’s unemployment rate and economic growt h rat e.

1.4 Questions of this Study

1. What are t he trends in China’s unemployment and economic growth? 2. What are t he long-run co-integration of China’s unemployment and

economic growt h?

3. What are t he short -run co-integration of China’s unemployment and economic growt h?

4. What are t he causal linkages that exist among China’s unemployment rat e and economic growt h rat e?

1.5 Study Hypotheses

The hypot heses below would be assessed in t his st udy.

H0: There is no long-run co-integration of China’s unemployment and economic growt h.

H1: There is a long-run co-integration of China’s unemployment and economic growt h.

H0: There is no short -run co-integration of China’s unemployment and economic growt h

H1: There is a short -run co-integration of China’s unemployment and economic growt h

1.7 Significance of this Study

Essent ially, t he st udy will cont ribut e t owards improving policy decision making by t he government and ot her st akeholders on how unemployment and economic progress are connect ed in t he pursuit t o development and improving t he st andard of living of most Chinese. The findings of t his st udy will also help in det ermining t he sort of relat ionship t hat exist s bet ween unemployment and economic progress in t he short -t erm and t he long-t erm and it s peculiar influence on China’s economy. Moreover, it will help t he people of China t o appreciat e t he reason t he economy of China is experiencing higher economic growt h in current t imes but yet t here is a lot of unemployment sit uat ion available in t he count ry.

1.8 Scope and Limitations of the Study

Various st udies have been conduct ed on t he relat ionship bet ween unemployment and economic growt h wit hin different jurisdict ion nonet heless;

t he findings of such st udies seem not t o be consist ent wit h ot hers. The reasons for inconsist ency in findings of t hese st udies are at t ributed t o t he met hodology used, t he t ype dat a used, t he count ry of t he st udy and many ot hers.

Therefore, in t his st udy, a secondary macro-economic secondary dat a will be ext ract ed from World Development Indicat or (WDI) and t he dat a (t ime series) capt ured dat a set form t he durat ion of 1991 t o 2018 which represent s t wenty- seven (27) period set s. Hence, t he scope is limit ed t o t hese t wenty-seven-

period set s (1991-2018) which are as a result of insufficient availabilit y of dat a.

This st udy focused on only unemployment and economic growt h and not all ot her t ypes of macroeconomic indicat ors. The findings and recommendat ions of t he st udy may not apply t o ot her economies since t he dat a used is rest ricted t o China only.

LITERATURE REVIEW Introduction

This sect ion is keen on reviewing det ailed lit erat ure which is pert inent t o t his st udy and as such, int ended t o bring out det ailed account on t he various perspect ives and int uit ion on; t rends in China’s unemployment and economic growt h, t he concept of unemployment , various concept s on economic growth, and theoretical of Okun’s t heory and empirical reviews of ot her researchers.

Trends in China’s Unemployment

The annual unemployment rat e of China is wit hin t he range of 3.76% and 4.89%

in 2007 and 1991 respect ively. This shows t hat out of 100 people who are act ively searching and willing t o work t o receive some income only 4 t o 5 people are unable t o secure employment . This really shows that unemployment rat e in China which falls in t he range of 3.76% t o 4.89% is not high but moderat e and it really shows how t he economy of China is able to cont ain most of t he available human capit al or labour force.

Alt hough, t here is some linear addit ional upsurge in t he rat e of unemployment from 2010 where t he unemployment rat e was 4.12% t o t he current year 2018 where t he unemployment rat e is 4.71%. However, it can be perceived t hat the linear increase in t he unemployment rat e in each year from 2010 t o dat e is reasonable.

Trends in China’s Economic growth

China wit hin t he last four decade, t hat is, 1979 t o 2017 has t ransformed its economy from t he st at e is a poor developing nat ion t o a st at e of being one of t he most power developed market s in t he world. The average annual real product ivity out put of China has grown t o an approximat e of 10% which according t o t he World Bank makes t hem one t he fast er grown, expanded and sust ained economy in t he world. This change in t ransit ion has cause China t o eradicat e about 800 million persons out of povert y (Morrison, 2018).

According t o t he annual t ime series dat a available at World Development Indicat or, t he annual economic growt h (GPD) rat e of China is wit hin t he range of 14.23% and 6.7%which represent s t he highest rat e economic growt h (GPD) and t he lowest economic growt h (GPD) rat e respect ively form 1991-2018. This shows t hat from 1991 t o 2018, a variat ion in economic progress (GPD) rat e is wit hin t he highest 14.23% and lowest at 6.7%.

Though t he rat e of economic growt h (GPD) is changing, in 1992 China had experienced it s highest increase in economic growt h (GPD) rat e wit h a change of 4.93%. This shows t hat there was a lot of labour out put which led to an increase in product ion. Nonet heless, bet ween 2003 and 2004 China experience it s lowest change of economic growt h (GPD) rat e wit h a rat e of 0.07%. Which indicat e t here was lit t le out put which led t o const ant or lit tle addit ion t o 2003 economic growt h (GPD).

The concept of Unemployment

The phenomenon of unemployment has been expounded from diverse viewpoint s in t he economic lit erat ure. The Int ernational Labour Organisat ion (ILO) defines unemployment based on t hree (3) import ant condit ions of which must be meet simult aneously and t hese condit ions are; not working, ready to get employed and searching for a job (ILO, 2019). Therefore, Hussmanns, Mehran and Verma (1990, p. 97) post ulat ed t hat unemployment encompass all individuals who meet t he recommended age t o engage in economic act ivities and meet s t he condit ions of wit hout work, t hat , individuals, are not self-employment or who are not engaged in any job t hat fetches t hem income; current ly available for work, t hat is, individuals who are readily available t o be engaged any income earn job or employment and; seeking work, t hat is, individuals who are making an effort t o get income-earning job or employment . However, t here are except ions for individuals who are current ly not working but will st art work within the reference t ime frame and for individuals who are on an impermanent suspension.

The classical t heory apprises t hat unemployment is a short t erm condit ion which free market force will aut omat ically deal wit h it and rest ore maximum occupat ion in t he economy but t he t heory of t he Keynesian post ulat e that unemployment exist s because of deficient aggregat e demand for labour and t hat government s should use expansionary fiscal policy t o help reduce unemployment in t he economy (Banda, Ngirande, & Hogwe, 2016).

In t he words of (Brunner & Melt zer, 1978, p. 1), “Unemployment can be defined as t he difference bet ween t he amount of employment demanded and supplied at each real wage or as t he difference bet ween act ual and equilibrium employment . Bot h definit ions are in use current ly”. The Marxist t heory explains t hat unemployment is as a result of t he capit alist syst em where t he means of product ion are owned by t he bourgeoisie and t he prolet ariat are exploit ed t hereof t hrough alienat ion and t hat unemployment can be reduced by replacing t he capit alism wit h t he socialism (Gyang, Anzaku, &

Iyakwari, 2018). Moreover, t he Keynesian hold t he view t hat unemployment is normally t riggered by insufficiencies in t ot al demand over specific periods wit hin t he labour market such t hat adequate jobs are creat ed to accommodat e people who want t o work (Keynes, 1936).

The rat e of unemployment wit hin every count ry is measured by t he occurrence of unemployment and it is considered as a percent age by division of t he whole of jobless persons by employed persons (Ademola & Badiru, 2016) nevert heless, (Hussmanns, Mehran, & Verma, 1990) apprise that unemployment rat e is det ermined in relat ion t o t he t ot al number of employed personnel and unemployed personnel.

Unemployment has been classified int o different t ypes and t hese are volunt ary and involunt ary redundancy, frict ional and cyclical redundancy, seasonal and t echnological redundancy, st ruct ural and hidden redundancy (Soylu, Çakmak, & Okur, 2017).

The concept of economic growth

Economic progress is considered as part of t he ut most imperat ive fiscal t ools for plummet ing povert y as well as improving t he eminence of life (DFID, 2008).

Economic progress is well-defined as t he rise in gross domest ic product or real gross per capit al and it is, however, influenced direct ly by labour (employment ), nat ural resources and capit al and influenced indirect ly by t he collect ive demand, inst it utions, economic and fiscal policies, efficiency of t he government (Boldeanu & Const ant inescu, 2005).

According t o (Jhingan, 2003), economic growt h is t he procedure by which t he real per capit a revenue of a nat ion rises over a long durat ion of t he int erval, and it is det ermined t hrough t he rise in t he number of services and products manufact ured wit hin a nat ion. Hence, t here is t he much goods and improved services wit hin a successive t ime period which serves as t he basis of increasing prosperit y t hrough t he good level of comfort of t he people and reduct ion in t he disparit y of revenue delivery in a broader perspect ive (Ademola & Badiru, 2016).

Gross domest ic product which oft en abst ract ed as economic development is appreciat ed as a balanced pract ice of raising t he indust rious abilit y of t he individuals and hencefort h, of rising general revenue, being cat egorized by great er rat es of rise of per capit a product ivity and whole fact or out put, part icularly labour out put (Set h, John, & Dalhat u, 2018). Economic growt h is significant once t he degree of development is considerably great er t han

inhabit ants growth since it has t o cause a development in individual wellbeing t hrough creat ing of job opport unit ies and hence st rong demand for labour, t he cent ral and oft en t he only st rengt h of t he poor (DFID, 2008).

Theoretical reviews of Okun’s Law

In Arthur Okun’s studies on the Potential GNP: Its Measurement and

Significance, he apprised t hat maximum employment is an act of policy goal and t hat it should be linked t o a correspondence t arget of aggregate demand and product ion (Okun, 1962).

Okun’s Law explains the relat ionship t hat exist s bet ween t he variat ions in

unemployment and t he variat ions in economic (Gross Domest ic Product ) in order t o det ermine t he possible out put . The pot ent ial out put is t he highest level of real GDP output at maximum employment and Okun’s Law is the

measurement of t his out put in relat ion t o human capit al input . He post ulated t hat a GDP raise higher t han 3% on middling is required t o lower unemployment (Okun, 1962) however, t he rat e is not const ant but rather hinge on t he count ry growt h of t he employment power and employment out put . More so, it st ates t hat once unemployment drops by 1%, Gross Nat ional Product increases by 3%. Also, Okun apprised t hat quarterly alt erat ions in t he rat e of unemployment were connect ed t o quart erly real gross domest ic product growt h and aberrat ions of unemployment rat e from it s non-accelerat ing inflat ionary level which is connect ed t o aberrat ions of gross domest ic product from it s highest

are t he t wo t he significant empirical relat ionship bet ween economic growth and unemployment (Daly & Hobijn, 2010).

According t o Noor, Nor and Ghani (2007) t here are t wo (2) approaches that can be employed to develop the Okun’s elasticity constant and these are the out put - gap t echnique, which is shown below:

Xt -Xt *=b(Zt-Zt*) ……… (1)

Zt = act ual product ion, Zt *= possible product ion, Xt = normal unemployment , Zt *= possible unemployment, b=Okun’s constant.

Okun’s first difference is the next approach to estimate the Okun’s coefficient, which is shown below:

ΔX=α-b (ΔZ ̸ Z)………..….. (2)

An addit ional alt ernat ive is t o exam t he comparat ive out put to unemployment variat ions

(ΔZ/Z)t=α-bΔXt +εt……….…. (3) logZt=α-blogXt + εt………(4)

Approximat ion of b will give the Okun’s coefficient. This coefficient shows that t he relat ionship bet ween t he rat e of unemployment and economic progress (GDP) rat e is negat ive.

Empirical literature

Various empirical st udies will be explored t o help bring out t he relevant informat ion needed in t hese st udies. Numerous scholars have conduct ed research works t o examine t he relat ionship t hat exist s bet ween t he rat e of unemployment and economic development rat e of many jurisdict ions.

Nonet heless, cont radict ing findings have been est ablished due t o fact ors such as t he jurisdict ion of st udy, t he available and source of dat a for t he st udy, t he economet rics t echnique applied and many ot hers.

In t he mid- 20t h cent ury, Harrod and Domar made t he first research st udies on t he relat ionship bet ween unemployment and economic progress (GDP) rate (Quy, 2016). Their st udies emphasized on possible dysfunct ional aspect s of economic growt h such as ways in which economic progress could go hand- in-hand wit h increasing unemployment . Harrod and Domar st udies w ere grounded on crit ical issues of equilibrium which boils down t o an assessment bet ween t he normal growt h rat e which was dependent on t he rise in t he human resource and t he warrant ed economic growt h rat e which is also reliant on t he saving and invest ing behaviours of households and firms (Solow, 1956).

Sat o (1964) st at ed t hat t here is an equal influence in increasing out put of product ion and subsequent influence of increase employment based on t he nat ure of available income and t hat the sit uations surrounding t he availability of income for product ion are expressed as t he economic growt h rat e. The equilibrium among growt h rat es would warrant full occupat ion for

unemployed persons and full ut ilisat ion of income st ock in t he long t erm.

Moreover, Sato (1964, p. 1), apprised that “when the economy deviates slightly

from t he nat ural growt h rat e t he consequence would be eit her growing unemployment or prolonged inflat ion since t he syst em has no built -in equilibrating force”.

However, Solow model int roduced new concept ions int o t he debat e of economic growt h by discarding t he relat ionship bet ween economic progress and unemployment as peripheral (Quy, 2016). Solow (1956) indicat ed that product ion does not occur under t he assumpt ion of st at ionary proport ions which at t he long run causes dysfunct ion aspect of economic growth.

Nonet heless, Solow accept ed all t he ot her assumpt ion st ipulat ed by t he Harrod and Domar Model of economic growt h except st at ionary proport ions which will lead t o dysfunct ion of economic development in t he long-t erm (Schiliro, 2017). Solow’s model, t herefore, assumes t hat gross domest ic product (GDP) is produced according t o a t ot al product ion funct ion t echnology.

Net o and Silva (2013) also explained t hat there are four (4) main ways of explaining t he relat ionship bet ween unemployment and economic growth.

These four (4) ways are; capit alizat ions effect which demonst rat ions an adverse correlat ion bet ween unemployment and economic growt h; creat ive oblit erat ion out come which classifies an opt imist ic relat ion bet ween development and unemployment ; series of saving out comes which leads an adverse connexion bet ween unemployment and growt h; and as a final point,

organisat ion failure out come which leads t o an adverse connexion bet ween unemployment and growt h.

Set h, John and Dalhat u (2018) st at ed t hat there are no relat ionships bet ween t he rat e of unemployment rat e economic growt h rat e in Nigeria in t he long- t erm aft er employing t he ARDL Bound Test ing and t he Parsimonious Error Correct ion Model (ECM) of t he ARDL Model t o t est t he Dat a for t he period 1986 t o 2015. More so, out comes of t he Parsimonious Error Correct ion Model show t hat in t he short -run, a 1% rise in unemployment leads t o a 20.6% rise in economic growt h (real gross domest ic product ).

Gyang, Anzaku and Iyakwari (2018) used Augment ed Dickey-Fuller Test (ADF) t o examine t he st at ionary propert ies of unemployment , inflat ion and economic growt h (real gross domest ic product ) in Nigeria of t he periods 1986 t o 2015 and also used Johansen Co-int egrat ion Test as well as Granger Causalit y Test s t o check for coint egrat ion in t he long-t erm and short -t erm and also t est for t he causalit y bet ween t he rat e of unemployment , inflat ion rate and economic progress respect ively. However, t he findings showed t hat t here is a short -t erm and long-t erm relat ionship bet ween t he rat e of unemployment , inflat ion rat e and economic progress rat e and also t he findings of t he Graner Causalit y Test also show t hat unemployment and Inflation w ere not st at istically subst ant ial in explaining progress rat e in t he nat ion for t he periods under review.

Kreishan (2011) also conduct ed a st udy on t he connexion bet ween unemployment and economic growt h in Jordan by t he applicat ion of Okun’s law Approach by analysing t he yearly t ime series dat a for t he durat ion of 1970 t o 2008. The answers of t he st udies show t hat economic progress does not influence unemployment and t hat t here is no connexion bet ween economic growt h and unemployment in Jordan and more so, the Okun’s law which st ipulat es t hat there is an adverse connexion bet ween economic progress and unemployment does not hold in Jordan.

Levine (2013) apprised t hat t he relat ionship t hat exist s bet ween economic development rat e and t he rat e of unemployment might be a loose in t he short - t erm because it is not rare for t he rat e of unemployment t o demonst rat e a sust ainable det eriorat ion which somet imes aft er ot her bold measures of economic policy plans have yielded a posit ive result s and t his is usually ment ioned t o be a lagging economic point er. However, t he finding of t he st udies shows t hat there is an adverse link bet ween unemployment and economic progress in t he long-t erm because so long as development in t he real gross domest ic product (GDP) surpasses development in employee product ivity, service will upsurge. This will cause a vacancy wit hin t he product ion sect or and t his will event ually reduce unemployment in t he long- run.

Özel, Sezgin, & Topkaya (2013) conduct ed a st udy t o invest igate t he fiscal growt h, product ivity and unemployment dat a for seven indust rial nat ions (G7)

st rong significant negat ive relat ionship bet ween economic development and unemployment wit hin t he period 2000-2007 which is marked t he pre-crisis period. More so, t he finding of t he st udies also revealed t hat t here is an insignificant and loosed adverse relat ionship bet ween unemployment rate and economic development rat e wit hin t he period of 2008-2011 which marked t he post -crisis period.

Soylu, Cakmak and Okur (2017) applied Panel Unit Root , Pooled Panel OLS and Panel Johansen Co-int egrat ion t est t o examine t he relat ionship bet ween economic progress and unemployment in East ern European Count ries for t he period of 1992-2014 wit hin panel dat a framework. The findings of t he st udies revealed t hat unemployment and economic growt hs were st at ionary at first level. However, t he findings of st udies also revealed t he presence of an adverse long-t erm coint egrat ion bet ween unemployment and economic progress. More so, economic progress posit ively causes a change in unemployment which means an upsurge in economic progress will event ually lead t o a drop in unemployment .

St udies by Birchenall (2002) on development and unemployment (without market resist ances) also indicat ed t hat an increase in economic development by t he subst it ution of opport unit y cost of capit al which will event ually affect unemployment posit ively because labour or human resource will st ill be part of t he subst it uted opport unit y cost of means of product ion and t his will lead to great er unemployment of t he unskilled workers.

Accordingly, Parrello (2010) also apprised t hat t here is a progressive relat ionship bet ween unemployment and economic development and that t he efficacy of any policy on labour market designed at enhancing t he performance of t he labour market , significant ly hinges on how individuals mark-down fut ure income. Likewise, Adomola and Badiru (2016) explained t hat t here is a progressive relat ionship bet ween unemployment , inflat ion and economic progress rat e aft er using OLS and Diagnost ic t o analyse t he connexion bet ween unemployment , inflat ion and economic progress.

Banda, Ngirande and Hogwe (2016) also analysed t he effect of economic development on unemployment of Sout h Africa by employing a periodical t ime series dat a for t he year 1994-2012. Their st udies showed t he exist ence of a posit ive long-run relat ionship bet ween unemployment and economic development after using Johnsons’ Cointegration and Vector Error Correction Model. This means an increase in unemployment in t he long-t erm will also reflect growt h in economic progress. More so, Enejoh and Tsauni (2017) also assert ed t hat there is a posit ive relat ionship among unemployment and growth rat e in bot h t he short -t erm and long-t erm. The finding also reveals that unemployment causes a change in economic growt h but economic growth do not cause a change in unemployment .

Cont rariwise, a st udy by Li and Liu (2012) on t he link bet ween Chinese t he rate of unemployment , economic development and inflat ion aft er employing an annual dat a from 1978 t o 2010 revealed t hat there was bot h short -t erm and

progress and inflat ion, t heir st udy also confirms t hat economic progress is adversely relat ed t o unemployment rat e in t he absence of ext ernal fact ors.

But in t he short -t erm economic growt h is posit ively relat ed t o unemployment rat e which violates the Okun’s law. The Granger causality test reveals that the presence of only one-way Granger causalit y bet ween economic growt h and unemployment rat e and t hat unemployment does not impact economic progress but economic progress rat her influence a change in unemployment .

Furt hermore, Karabulut and Gokhan (2010) examined t he relat ionship bet ween gross domest ic product and unemployment : evidence from MENA Count ries. They admit t ed t he presence of long-t erm connexion among gross domest ic product growt h and unemployment but furt her apprised t hat the relat ionship bet ween gross domest ic product growt h (economic growt h) and t he rat e of unemployment is an adverse relat ionship which means a rise in gross domest ic product growt h (economic growt h) means a decrease in unemployment rat e in chosen MENA count ries (Turkey, Egypt , Isra3el, and Jordan).

Abdul-Khaliq, Soufan, & Shihab (2014) st udied t he relat ionship bet ween t he rat e of unemployment and GDP growt h in Arab count ries for t he durat ion of 1994 t o 2010. They used a unit root t est approach and Pooled EGLS (Cross- sect ion SUR) t o t est for t he st at ionary level of t he variables of t he st udy. The findings of t heir st udies showed t hat economic development has an adverse and significant relat ionship wit h t he rat e of unemployment which affirms Okun’s Law which states that an upsurge in economic growt h leads t o a

reduct ion in t he rat e of unemployment in t he long-run and a reduct ion in economic development rat e will lead t o a rise in t he rat e of unemployment .

Hua-chu (2008) conduct ed an empirical st udy on analysis of t he relat ionship bet ween economic progress and t he rat e of unemployment in Guangdong from 1978 t o 2016. The findings of his st udies revealed t hat t here is a long -run st able relat ionship bet ween t he rat e of unemployment and economic progress and t hat a 1% upsurge in economic progress leads t o 0.22% upsurge in t he rat e of unemployment . More so, economic progress granger causes t he rat e of unemployment whiles t he rat e of unemployment also granger cause economic progress which means t he rat e of unemployment can cause a change in economic progress and economic growt h can also cause a change in t he rat e of unemployment .

Mosikari (2013) made a st udy on t he effect of t he rat e of unemployment on t he gross domest ic product in Sout h African by using a yearly t ime series of t he durat ion of 1980 t o 2011. He applied Augment ed Dickey-Fuller (ADF) st at ionarity t est and Phillip-Perron t est s t o check and confirm t he st at ionarity of t he variables of t he st udy. He t hen used Johansen Co-int egrat ion t o t est t he long-t erm relat ionship bet ween t he rat e of unemployment and economic progress (gross domest ic product ) since all t he variable of t he st udy were st at ionary at levels and also applied Granger Causalit y t est t o t he causal connexion bet ween t he rat e of unemployment and economic progress. The result s of his st udies showed t hat t here is long-t erm relat ionship bet ween t he

st udies also showed t hat economic progress and t he rat e of unemployment does not cause a change each ot her aft er applying Granger causalit y t est .

Göçer & Erdal (2015) used a panel dat a analysis met hod t o st udy t he connexion bet ween t he rat e of yout h unemployment and economic progress of eight een (18) Europen count ries for t he period of 1996-2012 in t he perspect ive of Okun law. They employed Panel Unit Root Test t o check whet her t he dat a for t he variables of t he st udy were st at ionary and Panel Co- int egrat ion Test t o check t he long-t erm connexion bet ween t he rat e of youth unemployment and economic progress. The findings of t he st udy showed t he variables of t he st udy were not st at ionary at level but became st at ionary at first difference and also t he result s of t he st udy also showed t hat t here is a negat ive long-t erm connexion bet ween t he rat e of yout h unemployment and economic progress. This means t hat an upsurge in economic progress will show a reduct ion in yout h unemployment .

Misini and Badivuku-Pant ina (2017) used a simple linear regression t o analyse t he relat ionship bet ween nominal gross domest ic product (economic growth) and t he rat e of unemployment . The findings of t heir st udies revealed a negat ive relat ionship exist s bet ween nominal gross domest ic product (economic growt h) and unemployment .

Noor, Nor and Ghani (2007) conduct ed a st udy on relat ionship among output and unemployment in the Malaysian economy; does Okun’s Law exist? They used Augment ed Dickey-Fuller (ADF) st ationarity t est and Phillip-Perron t ests to

t est and confirm t he st at ionarity of unemployment and gross domest ic product . The findings of t he st udies showed t hat bot h out put and unemployment of st udy were not st at ionary at level but became st at ionary at first difference. More so, t he regression result s also showed t hat there is a negat ive long-t erm connexion bet ween t he rat e of unemployment and gross domest ic product (economic growt h) and also t he rat e of unemployment and t he gross domest ic product had a t wo-way causalit y link aft er applying Granger Causalit y Test . This means t he rat e of unemployment causes a variat ion in gross domest ic product and also gross domest ic product also causes a change in t he rat e of unemployment .

Also, Imran, Mughal, Salman and Makarevic (2015) invest igated t he relat ionship bet ween unemployment and fiscal growt h of 12 select ed Asian nat ions for t he durat ion of 1982 t o 2011. The findings of t heir st udies show that t here is a significant adverse relat ionship bet ween unemployment and fiscal growt h aft er applying t he fixed effect and Pooled OLS t echniques. Which means an upsurge in unemployment leads a reduct ion fiscal growt h rat e.

Makaringe & Khobai (2018) invest igated t he t rends and effect of unemployment on fiscal growt h in Sout h Africa using periodical dat a over t he period 1994 first quart er t o 2016 fourt h quart er. They used Augment ed Dickey- Fuller (ADF) st at ionarity t est and Phillip-Perron t est s t o t est and confirm t he st at ionarity of t he variables of t he st udy. The out comes of t he t est revealed that t he variables of t he st udy were not st at ionary at lev el but became st at ionary

and long-t erm associat ion bet ween unemployment on fiscal growt h of which t he result of t he t est showed t hat there is an adverse short -t erm and long-t erm associat ion among t he variables of t he st udy. The findings of t he st udy confirm Okun’s Law which states that there is an inverse relat ionship among unemployment and fiscal growt h.

Drit sakis & St amat iou (2016) conduct research on invest igating the relat ionship among unemployment rat e, fiscal growt h and inflat ion rat e in Greece, using annual dat a covering t he durat ion of 1995 t o 2015. They employed Augment ed Dickey-Fuller (ADF) Test , Phillip-Perron Test s and Dickey-Fuller Test t o check t he st at ionarity of t he variables of t he st udies and t he findings of t ests revealed t hat unemployment rat e, fiscal growt h and inflat ion rat e were st at ionary. They furt her employed Aut o-Regressive Dist ribut ed Lag Test t o test for long-t erm and short -t erm co-int egrat ion among unemployment rat e, fiscal growt h and inflat ion rat e and Vect or Error Correct ion Model t o check t he direct ion of t he causat ion among unemployment rat e, fiscal progress and inflat ion rat e. The result s of t he t est revealed t hat t here is a negat ive relat ionship bet ween unemployment and fiscal growt h in bot h short -t erm and long-t erm. Moreover, in t he short -t erm unemployment cause a change in fiscal growt h whiles fiscal growt h does not cause a variat ion in t he rat e of unemployment but wit hin t he long-t erm unemployment and fiscal growth causes a change in each ot her.

Lam (2014) conducted a study on the applicability of Okun’s connexion concerning unemployment and GDP Growt h in t he Philippines: A Time Series

Approach. He used Dickey-Fuller Test and Phillips Perron Test t o check t he st at ionarity of t he t ime series dat a and t he result s of t he t est showed t hat fiscal growt h was st at ionary at level but unemployment was not st at ionary at level but became st at ionary at first difference. He t hen used t he Engle-Granger Test and Johansen Co-int egrat ion Test t o t est for a long-t erm relat ionship among t he variables of t he st udy and t he out comes of bot h t est disclosed that unemployment and fiscal growt h are co-int egrat ed. They also used Granger Causalit y Test t o check t he direct ion of causat ion bet ween t he rat e of unemployment and GDP Growt h and t he out comes of t he t est indicat ed that unemployment causes a change in fiscal growt h whiles fiscal growt h does not cause any change in unemployment . Therefore, t he findings of t he st udies were consistent with Okun’s Law.

Conclusion

The above-reviewed works show cont radict ing findings on t he relat ionship bet ween t he rat e of unemployment on fiscal growt h rat e. Theoret ical st udies by Okun assert t hat he is an inverse relat ionship bet ween unemployment and fiscal growt h whiles ot her empirical st udies affirms Okun’s law only in the short- t erm or only in t he long-t erm or even in bot h t he short -t erm and t he long-t erm.

Nevertheless, some other empirical findings also discard Okun’s law because t he out comes of t heir st udies showed a posit ive relat ionship bet ween unemployment and fiscal growt h in eit her t he short -t erm or in t he long-t erm or

even in bot h t he short -t erm and t he long-t erm. More so, ot her st udies endorse t he presence no relat ionship bet ween unemployment and fiscal growt h in eit her t he short -t erm or long-t erm or even in bot h t he short -t erm and t he long- t erm.

METHODOLOGY Introduction

This sect ion out line t he det ailed st eps of t he various research approaches to be used in helping t o achieve t he research object ives of t his st udy. This includes five sect ions which are t he Dat a Source, Measurement of Variables, Model specificat ion, and t he Est imat ion st rategy.

Data Source

The st udy employed secondary macro-economic dat a t hat was downloaded from t he World Development Indicat or for t he period 1991-2018. The dat a of t he st udy was a t ime series dat a where it s observat ions were based on mult iple variables over some period of t ime and were arranged in sequent ial order. The main variables under st udy are t wo variable which is economic growt h proxy by GDP growt h (annual %) and Unemployment proxy by Unemployment , t otal (% of t he t ot al labour force). Nevert heless, t he sample of t he st udy was based on t he availabilit y of t he dat a set and t he import ance of t he chosen variables and how t hey affect each ot her.

Measurement of the variables of this study

The variables used in t his st udy were measured as; economic growt h was proxy by annual Gross Domest ic Product which is t he quant ity of economic output

how much real GDP grows from one period t o t he next . Thus, t he rat e of Real GDP is calculat ed as follows;

Current Real GDP - Previous Real GDP

Real GDP = X 100……….

(1)

Previous Real GDP

Whilst , t he Unemployment rat e proxy by Unemployment , t ot al (% of t he t otal labour force) is t he percent age of unemployed persons in t he t ot al labour force. The rat e of unemployment is t he number of persons searching for a job divided by t he t ot al labour force. Thus, t he unemployment rat e is calculat ed as follows;

Number of Unemployed Persons

Real GDP = X 100………(2)

Labour Force

Model Specification

Okun law, which explains t he link bet ween unemployment and economic growt h, was used as a t heoret ical basis. The classical t heory explains that unemployment is a short t erm condit ion which free market force will aut omat ically deal wit h it and rest ore maximum occupat ion in t he economy (Banda, Ngirande, & Hogwe, 2016) whiles t he Keynesian hold t he view that

unemployment is normally t riggered by insufficiencies in t ot al demand over specific periods wit hin t he labour market such t hat adequat e jobs are creat ed t o accommodat e people who want t o work (Keynes, 1936). The Marxist t heory also explains t hat unemployment is as a result of t he capit alist syst em where t he means of product ion are owned by t he bourgeoisie and t he prolet ariat are exploit ed t hereof t hrough alienat ion and t hat unemployment can be reduced by replacing t he capit alism wit h t he socialism (Gyang, Anzaku, &

Iyakwari, 2018).

The study, therefore, adopted Okun’s (1962) model presented by Ademola

and Badiru (2016) which int egrat ed economic growt h proxy by Annual Gross Domest ic Product as t he independent variable and Unemployment rat e proxy by Unemployment , t ot al (% of t he t ot al labour force) as t he dependent variable. The model is specified as:

Y=β0+β1Ut + εt ………...…… (3)

Hence; Y denot es t he unemployment rat e, U denot es t he economic growt h.

Modificat ion t o model (3) is as follows:

Unempl =β1 + β2 𝑅𝑔𝑑𝑝+ εt ………..……… (4)

Hence; 𝑅𝑔𝑑𝑝 denot es t he rat e of GDP growt h (independent variable),

Unempl denot es unemployment rat e (dependent variable), β1 – Paramet ers and

εt - Error t erm (whit e noise)

Therefore equat ion (2) will be log-linearized in order t o crit ically t ransform it to est imable form:

lnUnempl =β1 + β2ln𝑅𝑔𝑑𝑝+ εt ………..……… (5) The apriori expect at ions are as follows: β1 <0 (i.e. β1 is non-negat ive value)

Estimation strategy

This sect ion t alks about t he est imat ion st rat egies employed in analysing t he dat a (t ime series) t hat were ext ract ed for t he st udy. The examinat ion of t he dat a was based on t hree import ant st eps which were; st at ionarity t est ; short - run and long-run Test ; and Granger causalit y t est . First ly, t he st at ionarity test was conduct ed t o make sure all t he variables were st at ionary I(0) or at first difference I(1). Secondary, coint egrat ion t est was conduct ed t o t est t he long- run co-int egrat ion among t he variables of t he st udy and furt her proceed to t est for short -run relat ionship bet ween t he variables and finally, t he Granger causalit y t est was conduct ed t o explain t he causal relat ionship bet ween t he variables of t he st udy or causal direct ion among t he variables of t he st udy.

Unit Root Test

The unit root t est is t he principal st age in t he est imat ion procedure. It was carried out on t he variables (Unemployment and Economic growth) employed in t he st udy t o t est if t he st udy variables are st at ionary at levels I(0) or st at ionary at first difference I(1) since t here will be spurious regression results

if a non-st at ionary series dat a is regressed on anot her non-st at ionary data (Gujarat y, 2004).

The major principle underlying t he t ime series is t he st at ionary levels of t he data in quest ion. Since t he dat a (t ime series) was adopt ed t o evaluat e t he relat ionship bet ween variables for fut ure predict ion and analysis, it was, t herefore, expedient t o check whet her t he velocit y (fluct uation) was constant over a long-run, check whet her t he variance and co-variance were invariant (st ay const ant ) over t ime.

Hence, t he st udy used bot h Augment ed Dickey-Fuller (ADF) unit root t est by Dickey and Fuller (1979) and t he Phillips-Perron (PP) unit root t est by Phillips- Perron (1988) t o t est and confirm t he st at ionarity of t he variables (Unemployment and Economic growt h) at levels and at first levels. Bot h t he Augment ed Dickey-Fuller (ADF) unit root t est and t he Phillips-Perron (PP) unit root t est would t est t he alt ernat ive hypot hesis against t he null hypot hesis to check whet her t he dat a (t ime series) employed were non-st at ionary.

Accept ing or reject ing t he null hypot hesis depends on t he t -t est of t he lags and t he t -st atistics. If t he t -t est of t he lags is a lesser amount of t han t he crit ical point t he null hypot hesis of a presence of unit root is accept ed.

The Autoregressive Distributed Lagged (ARDL) cointegration framework

Coint egrat ion is t he second st age of t he est imat ion procedure. It was execut ed out t o explain t he long-t erm relat ionship bet ween variables of t his

st udy (t he rat e of Unemployment and Economic growt h rat e). Series of lit erat ure in t he field of economics has employed t he Johansen coint egrat ion approach in est imat ing t he long-run relat ionship of variables. Most researchers have argued t hat t his is t he best when it comes t o dealing wit h I(1) variables.

On t he ot her hand, researches by earlier scholars int roduced Aut oregressive Dist ribut ed Lags (ARDL) which has become an alt ernat ive in at t empting coint egrat ion issue. These scholars believe t hat the ARDL approach has so many benefit s t hat out weigh t he benefit of t he Johansen co-int egrat ion.

However, t his st udy employed a coint egrat ion met hod acknowledged as t he

“Autoregressive Distributed Lag (ARDL) bound test. The reasons for employing

t he ARDL bound t est are; The ARDL coint egrat ion procedure is comparat ively more efficient when t he size of t he dat a of t he st udy is small. This st udy dat a of st udy covers t he period of 1991t o 2018 inclusive. Thus, t he whole dat a set for t he st udy is 27 which are quit e good considering t he scope and nat ure of t he st udy; and also, t he ARDL model will enable t he ordinary least square (OLS) t echnique t o est imat e t he coint egrat ion once t he lag of t he model is ident ified. This makes t he ARDL approach very t he best model in t his case and;

Finally, t he ARDL met hod does not need t he pret est ing of t he variables of t he st udy involved in t he met hod for unit root s as compared t o ot her met hods such as t he Johansen approach. It is expedient t o apply t he Johansen t echnique when t he variables of t he st udy are st at ionary at levels I(0) but when all variables are st at ionary at first difference I(1) or t he variables are at a

combinat ion of st at ionary at t he level I(0) and st at ionary at first difference I(1), t he ARDL model is t he best .

ARDL model uses just t wo st eps in it s est imat ion. First ly, t he F-t est is employed to decide t he incidence of long-t erm relat ionship bet ween variables under st udy.

Secondary, we approximat e t he short run error correct ion model.

ARDL Bounds test

This t est was done following t wo main procedures. The first procedure was to est imat e t he ARDL equat ion by using t he ordinary least squares est imat or in ot her t o check if t here exist s a long-t erm relat ionship among t he variables of t he st udy. The F-t est is t hen conduct ed for t he combined significance with respect t o t he elast icit y const ant s of variables at t heir lagged st at e.

We check t he null hypot hesis in cont radict ion of t he alt ernat ive hypot hesis as follows:

𝐻₀₌ 𝛿𝑜 𝐻₁ ≠ 𝛿₀

The crit ical values give rise t o t he t est for coint egrat ion when t he variables of t he st udies are st at ionary at levels I(0) or st at ionary at first difference I(1). There is an assumpt ion on t he lower bound value in t hat the order of combinat ion of t he explanat ory variable is zero, or I(0) wit h t he order of int egration of t he upper bound being one, I(1). The following int erpret ation is given;

1) When t he F calculat ed is more t han t he higher bound, we conclude that t here is co-int egrat ion bet ween t he t wo variables of t he st udy. Then, we discard t he null hypot hesis of no relat ionship bet ween t he variables of t he st udies.

2) When t he F calculat ed drops lower t han t he lesser bound figure, t hen we cannot discard t he null hypot hesis of no relat ionship among t he variables of t he st udies.

3) When t he F calculat ed falls bet ween t he t wo bounds t hat are lower and upper bound, t here is no conclusive decision whet her t he variables of t he st udies are coint egrat ed or not .

Imperat ively, we have t o proceed wit h t he bound t est , we impose a rest rict ion on t he ARDL t o approximat e t he long-t erm relat ionship bet ween t he dependent and independent variables of t he st udies.

Test for Causality

Test for causalit y is t he final st age of t he est imat ion procedure. It was carried out t o inspect t he causal relat ionship bet ween t he t wo variables (t he rat e of unemployment and economic growt h rat e). The st udies employed Engle &

Granger (1989), Granger causalit y t est t o know causal relat ionship among t he t wo variables of t he st udy, whet her one variable direct ly causes t he ot her variable or none of t he variables has an influence on t he ot her.

ANALYSIS OF DATA Introduction

The analysis of dat a of t he st udies is present ed in t his sect ion. It is divided into subsect ion sect ion which out lined t he st at istical t rends of t he variables of t he st udies, t he unit root t est , t he coint egrat ion bound t est , t he long run and t he short run ARDL error correct ion models and t he Granger causalit y.

Unemployment trend in China

The annual unemployment rat e of China is wit hin t he range of 3.76% and 4.89%

in 2007 and 1991 respect ively. This shows t hat out of 100 people who are act ively searching and willing t o work t o receive some income only 4 t o 5 people are unable t o secure employment . This really shows that unemployment rat e in China which falls in t he range of 3.76% t o 4.89% is not high but moderat e and it really shows how t he economy of China is able to cont ain most of t he available human capit al or labour force.

Alt hough, t here is some linear addit ional upsurge in t he rat e of unemployment from 2010 where t he unemployment rat e was 4.12% t o t he current year 2018 where t he unemployment rat e is 4.71%. However, it can be perceived t hat the linear increase in t he unemployment rat e in each year from 2010 t o dat e is reasonable.

The t rend of t he unemployment rat e in China from 1991-2018 is int eresting

rat es of changes in t he unemployment rat e for a period of 27 years. From t he graph below, China experienced it s highest unemployment rat e in 1991 with an unemployment rat e of 4.89% t hus among 100 act ive people who were willing and searching for a place t o work in 199, it was only 5 of t hem who couldn’t get employment or job to do.

The rat e of unemployment begun t o decrease from 1992 wit h a rat e of 4.39%

t o 1994 wit h 4.34% where it t hen begun t o rises again from 1995 wit h 4.55% to 1999 wit h 4.7%. In 2000, t he rat e began t o decrease wit h rat e of 4.53% which 0.17% decrease from 1999 rat e of 4.7% unt il t he unemployment fall to Chinas’

lowest unemployment rat e of 3.76% t hus only 4 out 100 people who are act ive and willing to work didn’t get employed. From 2010 t he unemployment rate of China has cont inued t o rise from a rat e of 4.2% t o 4.7% which is it s current unemployment rat e. Thus current ly, 5 out of 100 people who are act ive and willing to work didn’t get employed.

1.32 1.36 1.40 1.44 1.48 1.52 1.56 1.60

92 94 96 98 00 02 04 06 08 10 12 14 16 18

LNUEMP

Economic growth trend in China

China wit hin t he last four decade, t hat is, 1979 t o 2017 has t ransformed its economy from t he st at e is a poor developing nat ion t o a st at e of being one of t he most power developed market s in t he world. The average annual real product ivity out put of China has grown t o an approximat e of 10% which according t o t he World Bank makes t hem one t he fast er grown, expanded and sust ained economy in t he world. This change in t ransit ion has cause China t o eradicat e about 800 million persons out of povert y (Morrison, 2018).

According t o t he annual t ime series dat a available at World Development Indicat or, t he annual economic growt h (GPD) rat e of China is wit hin t he range of 14.23% and 6.7%which represent s t he highest rat e economic growt h (GPD) and t he lowest economic growt h (GPD) rat e respect ively form 1991-2018. This shows t hat from 1991 t o 2018, a variat ion in economic progress (GPD) rat e is wit hin t he highest 14.23% and lowest at 6.7%.

Though t he rat e of economic growt h (GPD) is changing, in 1992 China had experienced it s highest increase in economic growt h (GPD) rat e wit h a change of 4.93%. This shows t hat there was a lot of labour out put which led to an increase in product ion. Nonet heless, bet ween 2003 and 2004 China experience it s lowest change of economic growt h (GPD) rat e wit h a rat e of 0.07%. Which indicat e t here was lit t le out put which led t o const ant or lit tle addit ion t o 2003 economic growt h (GPD).

The t rend of economic growt h (GDP) rat e in China from 1991-2018 is

were many dissimilar rat es of changes in t he economic growt h rat e (GDP) t he period of 27 years. From t he graph below, in 1991 China experienced 9.3%

economic growt h (GDP) rat e and t hen t he economic growt h (GDP) increase t o 14.22% in 1992 which represent 4.92% which indicat e China highest increase of economic growt h (GDP) rat e up t o dat e but represent t he second highest economic growt h (GDP) rat e.

Economic growt h (GDP) begun t o cont inuously decrease from 1993 wit h t he rat e of 13.86% t o 2001wit h rate of 8.34% and t hen begun t o gain some st rength from 2002 wit h t he rat e of 9.13% t o 2007 wit h t he rat e of 14.23 which is t he highest economic growt h (GDP) rat e up t o dat e. Since 2007, economic growth (GDP) has diminished from 2008 wit h a rat e of 9.65% which represent t he highest decline in economic growt h (GDP) rat e up t o dat e.

1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7

92 94 96 98 00 02 04 06 08 10 12 14 16 18

LNGDP

Analysis of the Unit Root Test

In ot her t o est imat e non-spurious regression result s, I first est imat ed t he st at ionarity of t he variables by employing t he Augment ed Dickey-Fuller (ADF) and t he Phillips and Perron (PP) unit root t est and t he following result s were obt ained.

Table 4.1 below shows t he result s obt ained for t he St ationarity of variables.

variables Level First Difference ADF PP ADF PP

Constant Constant Constant Constant

Inuemp 0.512 0.512 0.003***

0.003***

Ingdp 0.354 0.354 0.028***

0.028***

We t est the null hypot hesis of t he series being non-st at ionary or has a unit root against t he alt ernative hypot hesis of t he exist ence of st at ionarity. Mackinnon (1996) crit ical values was used in reject ing t he null hypot hesis by bot h ADF and PP t est , ***,**,* signifies t he reject ion of t he null hypot hesis of t he exist ence of a unit root at 1%,5%, and 10% significance levels respect ively.

It can be ascended from t able 4.1 t hat, t ests by ADF and PP clearly shows that

st at ionary at level I(0) since ADF t -st atist ics of -1.304 for economic growt h (GDP) and -2.447 for unemployment were less t han t he crit ical values of 1%, 5%, and 10% respect ively and PP t -st atistics of -1.304 for economic growt h (GDP) and - 2.519 for unemployment were also fewer t han t he crit ical values of 1%, 5%, and 10% respect ively.

Nonet heless, t he variables (economic growt h (GDP) and unemployment ) of t he st udy was st at ionary at first level I(1) since ADF t -st atist ics of -5.707 for economic growt h (GDP) and -6.076 for unemployment were great er t han the crit ical values of 1%, 5%, and 10% respect ively and PP t -st atistics of -5.706 for economic growt h (GDP) and -6.284 for unemployment were also more t han t he crit ical values of 1%, 5%, and 10% respect ively.

Therefore we can conclude t hat t he variables (economic growt h (GDP) and unemployment ) of t he st udy were not st at ionary at level but t hey were all st at ionary at first difference which means t hat the dat a of variables of t he st udy are good t o use in t his st udy.

Bounds test

Bound t est expedit es t o check t he long run relat ionship bet ween t he variables (economic growt h (GDP) and unemployment ) of st udy. More so, it was expedient t o t he posit ion of t he F-st at istics wit hin t he crit ical value bound of significance.