Abstract:
This study analyzes the relative internal and external factors of the unemployment rate in
Pakistan by using annual time series of Pakistan from 1990 to 2022. In this analysis, the
dependent variable utilized in the study is the unemployment rate, while the independent
variables are secondary school enrollment, financial development, trade openness, FDI, and
inflation rate. Different econometric approaches are used for data analysis. Correlation
coefficient is used to examine the extent of relation between variables. Unit root test is used to
analyze the level of stationary of variables using Augmented Dickey-Fuller test. ARDL model
is used for the short- and long-run estimation of parameters. Lastly, different model diagnostic
tests are applied to evaluate the issues of heteroskedasticity, autocorrelation, model
specification, residuals normality and dynamic stability of model. The analysis shows that the
variables secondary school enrolment, financial development, trade openness, and FDI are
negatively and significantly related to the unemployment rate, whereas the inflation rate is
positively and significantly related to the unemployment rate in Pakistan. In contrast, the short-
run results show that secondary school enrollment, financial development, and inflation rate
increase unemployment in the short-run, while trade openness is negatively related to the
unemployment rate in Pakistan. Keeping in view the outcomes, it is concluded that internal and
external factors are significant in influencing unemployment in Pakistan.
