Does Inflation and Economic Growth Affect Unemployment? Evidence From SAARC Countries

Abstract

Several studies have tested the relationship between inflation, economic growth, and unemployment. However, most studies investigate these linkages using data on single/individual countries involving two of these variables in most cases, thereby impeding a broader investigation. This paper analyzes the relationship between inflation, economic growth, and unemployment in a sample comprising SAARC countries. This is accomplished by analyzing panel data on these countries from 1990 to 2015 using fixed effects. Results indicate that economic growth and inflation on their own negatively affect unemployment in SAARC countries. Conversely, the combined impact of economic growth and inflation on unemployment is positive and statistically significant. The study further finds that certain control variables, such as human capital, trade, and foreign direct investment, negatively impact unemployment in SAARC countries.