The Role of Economic Uncertainty, Economic Growth, and Globalization in Affecting Unemployment in E-7 Countries

Abstract

Employment creation is one of the sustainable development goals’ top priorities to be achieved by 2030, and economic uncertainty poses a major threat to this goal. Using data from 1990 to 2017, our study examines the impact of economic uncertainty (EUI), economic growth (EG), and globalization on unemployment in E7 countries. Our study employs the second generation panel tests and the Cross-Section Augmented Autoregressive Distributed lag CS-ARDL and the Pooled Mean Group (PMG) estimation techniques. The findings of the CS-ARDL and PMG indicate that a decrease in EUI reduces unemployment in the long-run. In addition to decreasing unemployment, economic growth exhibits the Okun's law. The PMG results indicate that globalization has a positive and significant relationship with unemployment, while the CS-ARDL results indicate that globalization has a negative but insignificant effect on unemployment. The Juodis, Karavias, and Sarafidis (JKS) Granger-causality test demonstrates a unidirectional causal effect from EUI, EG, and globalization to unemployment. The policy implication is that the government and policymakers should adopt measures to reduce economic uncertainty. Moreover, unemployment, SDGs, and the Paris Agreement are interlinked, with the SDGs offering sustainable development that involves decent work and economic growth (SDG-8), whereas the Paris Agreement addresses climate change, which can affect employment and economic growth.