Acta Universitatis Danubius. Œconomica, Vol 16, No 2 (2020)

Macroeconomic determinants of unemployment in Africa: A panel data analysis approach

Kunofiwa Tsaurai


The study explored the macroeconomic determinants of unemployment in Africa using panel data analysis (fixed effects, random effects, pooled ordinary least squares, dynamic generalized methods of moments), with data spanning from 2001 to 2015. Several empirical studies on the determinants of unemployment have been done, results of which are convergent, divergent and quite mixed. What is clearly coming out of this empirical research is that there is no universal agreed list of the determinants of unemployment. Across all the four econometric estimation methods used, the variables which were found not to be significant determinants of unemployment include information and communication technology, human capital development and infrastructural development. The dynamic GMM method observed that the lag of unemployment exacerbated unemployment in Africa. All the four econometric approaches used produced results which show that FDI increased unemployment in the African continent. African authorities are therefore urged to ensure that they implement policies which ensures that the inflow of foreign direct investment (FDI) translates into easing unemployment woos in the continent. The random effects and pooled OLS noted that financial development had a significant positive effect on unemployment in the case of Africa. The relevant African authorities should therefore implement programmes and policies that enhances the poor people’s financial inclusion so that they can benefit from developed financial markets. As expected and justified by literature, the pooled OLS shows that trade openness and population growth had a significant positive impact on unemployment in Africa. However, the interaction between information and communication technology (ICT) and human capital development was found to have had a significant negative influence on unemployment across all the four econometric estimation approaches. Africa is therefore urged to enhance human capital development if they intend to economically benefit from new technologies especially during the present day 4th industrial revolution otherwise their people becomes redundant. As expected, fixed effects and pooled OLS methods shows that economic growth had a significant negative influence on unemployment in Africa. It is against this backdrop that the study urges African authorities to implement growth-oriented policies if they intend to reduce unemployment in the region.


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