Economic growth, inflation and unemployment in Africa: an autoregressive distributed lag bounds testing approach, 1991–2019

Abstract

Purpose

Unemployment is one of the major challenges facing most countries, including Africa as a continent. Seeking how to reduce unemployment, debt, inflation and increase gross domestic product (GDP), foreign direct investment (FDI) and gross capital formation in the continent has been an agenda of governments, policy makers and economists to. This study examines the relationship between economic growth, inflation, debt, FDI, gross capital formation, labor force, population and unemployment in Africa.

Design/methodology/approach

An updated panel dataset of 29 African countries was selected from different regions from 1991 to 2019. These countries were selected based on their unemployment, population growth and inflation rates. The Pesaran cross-sectional dependence and panel unit root test (the Dickey–Fuller cross-sectional supplemented and the Im-Pesaran-Shin cross-sectional) were applied. Further, the panel Autoregressive Distributed Lag (ARDL) model (Bounds test) and pooled mean group (PMG) estimator were utilized in this work.

Findings

This shows that economic growth, debt, labor force and population have a positive relationship with unemployment in the long run. Therefore, an increase in these variables generates an increase in the selected African countries' unemployment growth. In contrast, inflation, FDI and gross capital formation have a negative relationship with unemployment in the long run, which implies that an increase in these variables reduces unemployment in the selected African countries.

Research limitations/implications

This study has potential limitations because some data from the countries are not up to date and some years are missing from the data.

Practical implications

This study contributes to understanding unemployment and Okun's law in the African economy. This study shows that an increase in economic growth leads to a rise in unemployment, while an increase in inflation leads to a decrease in unemployment.

Originality/value

This paper provides an insight into the major factors that increase and reduces unemployment for government and policy marker to take the adequate measure.

Citation

Gómez, M. and Irewole, O.E. (2023), "Economic growth, inflation and unemployment in Africa: an autoregressive distributed lag bounds testing approach, 1991–2019", African Journal of Economic and Management Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/AJEMS-09-2022-0378