tiểu luận kinh tế lượng FACTORS THAT AFFECT UNEMPLOYMENT RATE OF 53 COUNTRIES IN THE WORLD

We will provide some insights and statistical research to examine howfactors such as the annual GDP growth rate, the annual population growth rate, theinflation rate… influence the unemp

FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS

-*** -ECONOMETRICS REPORT FACTORS THAT AFFECT UNEMPLOYMENT RATE OF

53 COUNTRIES IN THE WORLD

Lecturer : Dr Tu Thuy Anh Group members : Ha Phan Minh Anh - 1810520149

Le Thi Hong Ngoc - 1815520210 Nguyen Huong Lan - 1815520183

Hanoi, October 10 th 2019

Table of Contents

INTRODUCTION 2

I OBJECTS 2

II WHY DO WE CHOOSE THIS TOPIC? 2

LITERATURE REVIEW 3

I BASIC CONCEPTS OF UNEMPLOYMENT, UNEMPOYMENT RATE 3

1 Definitions of Unemployment 3

2 Classification 3

II RELATED RESEARCHES 4

1 The effect of real exchange rate on unemployment 4

2 Effect of population growth on unemployment 5

3 Effect of Foreign Direct Investment on unemployment 5

METHODOLOGY 7

I Model and data 7

1 Model 7

2 Data 7

II SUMMARY STATISTICS AND CORRELATION MATRIX 7

1 Summary statistics 7

2 Correlation Matrix 8

III TEST AND INFERENCE 9

1 Estimation 9

2 Multicollinearity 11

3 Normality 12

4 Autocorrelation 13

5 Heteroscedasticity 13

6 Testing hypothesis 15

RECOMMENDATION 17

CONCLUSION 19

REFERENCES 20

APPENDIX 21

I OBJECTS

In this day and age, unemployment has become a seriously worrying trend to theentire world It is not only the dilemma of the youth but also the major concern ofeach and every country in the world Unemployment leads to severe consequences,which includes people’s low income, struggling ways of life, stagnant growth ofthe economy, economy regression problems, increasing the rate of society’svices…

According to the report of the General Statistics Office of Vietnam, theunemployment rate of Vietnam in the third quarter of 2018 was 2.2%, which hadslightly risen compared to that of the second quarter (2.17%) and the first quarter(2.1%) Nonetheless, it is expected that the unemployment rate of Vietnam is likely

to experience a decrease, which is a good sign for the general economy The WorldBank published statistical database of high unemployment rate of some countriessuch as South Africa (27.33%) or North Macedonia (22%) In contrast, somecountries in the world have rather low unemployment rate which is approximately0% such as Qatar (0.14%) or Laos (0.6%) What are the reasons that created such ahuge discrepancy? The purpose of this report mainly focuses on answering thisquestion We will provide some insights and statistical research to examine howfactors such as the annual GDP growth rate, the annual population growth rate, theinflation rate… influence the unemployment rate of some countries in the world

II WHY DO WE CHOOSE THIS TOPIC?

With a view to find out the factors that create massive impacts on theunemployment rate of 53 selected countries in the world as well as proposeappropriate resolutions and recommendations to reduce the unemployment rate inthose countries, including Vietnam, we decided to choose the topic of “Factors thataffect unemployment rate of 53 countries in the world” This topic is among thewidespread concern of people and nations all around the world and the practicalresolutions are at issue and need to be clarified and executed, which makes it asuitable topic to do research about There have been many reports analyzing thistopic but our observations in the selected countries would bring about newdiscoveries and show the latest trends and examine possible resolutions Toconduct the research, we will use quantitative methods, which requires the data ofindexes of 53 countries all over the world, which was collected from the website ofWorld Bank

we use the unemployment rate It is an indicator that shows the general

unemployment condition of a country

To precisely calculate the unemployment rate, we need to clearly differentiate thefollowing definitions:

 People in their working age are the people who have the right to work inaccordance with the regulations in the Constitution

 Labor force is the number of people in their working age who are employed orsearching for employment

 Unemployed people are people who are not employed but actively looking forjobs

 Other than people who are employed and unemployed, those who are in theirworking age are considered people who are not in the labor force including: students,housewives, disabled people who do not have the ability to work and those who are notsearching for employment with different reasons

 The unemployment rate is defined as the percentage of unemployed workers in thetotal labor force

unemployment rate = 100% x number of unemployed workers total labor force

 The natural rate of unemployment is defined as the equilibrium rate ofunemployment i.e the rate of unemployment where real wages have found their freemarket level and where the aggregate supply of labor is in balance with the aggregatedemand for labor

2 Classification

2.1 Types of unemployment

Unemployment is a burden We need to find out where this burden is, in what kind

of community, occupation, gender, age… to understand the characteristics, to whatextent does it influence the economy and related problems We have the followingclassifications:

 Region (urban/rural area)

 Occupation (economic, agricultural…)

2.2 Reasons of unemployment

 Quitting jobs (resigning from a job due to different reasons such as low wage…)

 Losing jobs (being fired from a job due to difficulties…)

 New entrant: having just encountered the labor force but not having a job yet(young adults looking for a job, graduated students waiting to start their jobs…)

 Returning: people who left the labor force but have just returned to search foremployment

It can be seen that the unemployment rate is just a temporary number It alwaysfluctuates Continuous unemployment status usually happens in an undevelopedand stagnant economy

 Cyclical unemployment is the contribution of economic recessionary orexpansionary conditions to the total unemployment rate Cyclical unemployment risesduring recessions and falls during economic expansions and is a major focus of economicpolicy

II RELATED RESEARCHES

Based on the research that we have read, there are three main groups of researches:

 The effect of real exchange rate on unemployment

 The effect of population growth on unemployment

 The effect of Foreign direct Investment on unemployment

1 The effect of real exchange rate on unemployment

 Name of the research: “The effect of real exchange rate on unemployment”

 Authors: Zahra Bakhshi, Mehrzad Ebrahimi

 Publish year: 13/04/2016 - AIMI Magazine

 Results of the research:

The series of unemployment reality in many countries in the worldincluding Iran are due to many reasons In the research, there are four independentvariables which are exchange rate fluctuations, export, import and gross domesticproduct (GDP) The authors used the Lag model with 5 variables which areunemployment rate, exchange rate fluctuations, export, import and GDP Theresults of the research proved that in the long term as well as short term, GDP hadremarkably positive effects on unemployment; exchange rate had remarkably

negative effects on unemployment; there was no significant correlation betweenunemployment and other variables of the research including export and import.

 Faults of the research:

Other factors that could have a remarkable effect on unemployment were not takeninto consideration in this research Besides, the effects of real exchange rate onunemployment were not specifically evaluated, which was shown in the fact thatthe authors did not examine if the exchange rate had direct or indirect effect onunemployment If it did have a single indirect effect, it means that the exchangerate affected other factors and those factors would then affect unemployment

2 Effect of population growth on unemployment

 Name of the research: “Impact of population growth on unemployment in Nigeria”

 Author: Habiba Edward Gideon

 Publish year: 2017

 Results of the research:

This research used multiple regression model and data from 2007-2016, whichshows the same-dimensional relationship between the unemployment rate andpopulation As it can be observed, almost economies which have significantpopulation growth do not have the relative growth in the ability to utilize thehuman resource, which leads to high unemployment rate and underdevelopment.Despite this fact, the effects relating to this can be positive or negative, whichdepends on some factors such as firm government, which can bring out thesustainable growth and development of the country The key factors to resolutethese problems might be resources, technology and capital (according to JohnO.Aiyedogbon, 2012) If these problems are not taken into consideration andaddressed thoroughly, they might be the destructive dilemma of the country

3 Effect of Foreign Direct Investment on unemployment

 Publish year: 2016, Journal of Physics: Conference Series

 Result of the research:

This research used the data of the period of time from 1982-2012 of Malaysia,which shows the dimensional relationship between the unemployment rate and theFDI Specifically, when FDI increases in the long term, the unemployment ratedecreases and this relationship is even more obvious in the short term Thisresearch also concluded that a country needs to attract FDI from foreign countries

to decrease the unemployment rate The reason is that FDI can decrease thenational product shortage and human resources wastes

 Results of the research:

This research used the multiple regression model with the data of the period oftime from 1980 - 2015 of Nigeria, which shows the inverse relationship betweenthe unemployment rate and FDI Specifically, when FDI increases, unemploymentrate decreases The Neo liberal school stated that via FDI, most of the economicproperties can be achieved It can provide developing countries with crucialsupport in the process of industrial modernization The results show that toremarkably decrease the unemployment rate, the core of the policies needs somestrategies to attract FDI

(PRF): Y=ββ1+β2ggdp+β3gpop+β4inf+β5fdi+β6er+µi (SRF): Y^i=ββ^1+β^2ggdp+β^3gpop+β^4inf+β^5fdi+β^6er+ei

2 Data

a Describe the variables

Name of variable

Unit of variable Explanatory variables

Dependent

Independent

variable

rate

rate

b Describe the data

- Collected data shows information of basic factors related to unemploymentrate: unemployment rate, annual GDP growth rate, annual population growth rate,inflation rate, foreign direct investment rate and exchange rate

- Data collections: We use data sources on indexes of 53 countries in theworld which are collected on World Bank – a verified source that is highlyaccurate and run model in Gretl Software

II SUMMARY STATISTICS AND CORRELATION MATRIX

1 Summary statistics

Summary Statistics, using the observations 1 – 53

According to the data collected from the above table, we can realize:

Correlation of dependent variable vs independent variables:

● Cor(une,fdi) = -0.5049 → The correlation between Unemployment rate and FDI

is not at the same dimension, with the percentage of -50.49%

● Cor(une,inf) = -0.3591 → The correlation between Unemployment rate and Inflation is not at the same dimension, with the percentage of -35.91%

● Cor(une,gpop) = -0.3282 → The correlation between Unemployment rate and Annual population growth rate is not at the same dimension, with the percentage of-32.82%

● Cor(une,ggdp) = -0.6212 → The correlation between Unemployment rate and Annual GDP growth rate is not at the same dimension, with the percentage of -62.12%

● Cor(une,er) = -0.0177 → The correlation between Unemployment rate and Exchange rate is not at the same dimension, with the percentage of -1.77%

Comments: In general, the independent variables are correlated with the dependent

variable is not high, especially the “er” variable has a very low correlation

coefficient, just more than 1% In addition, the independent variables have

negative correlation coefficients, in the opposite dimension on the dependent variables

Correlation of independent variables vs independent variables:

Comments: Because the correlation coefficients between the independent variables

are less than 0.8 and all correlation coefficients of the variables are less than 0.9,

we can predict the model will not have multi-collinearity when model defects test

III TEST AND INFERENCE

1 Estimation

Model 5: OLS, using observations 1-53

Dependent variable: une

Coefficient Std Error t-ratio p-value

fdi −0.534428 0.251745 −2.123 0.0391 **

Describe the basic content of the value when estimating the function:

After running the regression model using Gretl software, we have summarized the

results in the following table:

Thus, the sample regression function expressing the influence of factors on the

unemployment rate has the form:

^

Y =14.7552+(−0.885627)ggdp+(−1.22137) gpop+(−0.885313).inf +(−0.534428) fdi+(4.93634e-05) er+e i

Meaning of estimation coefficients β :

Ceteris paribus, when the annual GDP growth rate increased by 1%, the

unemployment rate decreased by 88.5627%

Ceteris paribus, when the annual population growth rate increased by 1%, the

unemployment rate decreased by 122,137%

Ceteris paribus, when inflation rate increased by 1%, the unemployment rate

decreased by 88.5313%

Ceteris paribus, when FDI increased by 1%, the unemployment rate decreased by

53.4428%

Ceteris paribus, when exchange rate increased by 1%, the unemployment

decreased by 4.93634e-05%

Analysis of regression results:

- Number of observations for analysis: 53

- Number of variables of the model: 6

- The degrees of freedom of the model: 53 - 6 = 47

- The relevance of the model compared to the fact that R2 = 0.525811 shows thatthe independent variables explain about 52.5811% of the change of the dependentvariables This factor is sufficient to ensure a certain level of confidence in theselected model

- Looking at the results table, we see that, although estimates and models cannot beabsolutely accurate, with a certain degree of confidence, we can fully conclude thatthe unemployment rate depends on the following factors: the annual GDP growthrate, the annual population growth rate, the inflation rate, the FDI growth rate, theexchange rate

2 Multicollinearity

a Definition

In statistics multicollinearity (also collinearity) is a phenomenon in which onepredictor variable in a multiple regression model can be linearly predicted fromthe others with a substantial degree of accuracy In this situation the coefficientestimates of the multiple regression may change erratically in response to smallchanges in the model or the data Multicollinearity does not reduce the predictivepower or reliability of the model as a whole, at least within the sample data set; itonly affects calculations regarding individual predictors That is, a multivariateregression model with collinear predictors can indicate how well the entire bundle

of predictors predicts the outcome variable, but it may not give valid results aboutany individual predictor, or about which predictors are redundant with respect toothers

Note that in statements of the assumptions underlying regression analyses such asordinary least squares, the phrase "no multicollinearity" is sometimes used tomean the absence of perfect multicollinearity, which is an exact (non-stochastic)linear relation among the regressors