Macroeconomic Determinants of Unemployment In the East African Community

Abstract

Due to the increasing concern regarding the unemployment problem in the East African Community (EAC), this study examines the macroeconomic determinants of unemployment using panel data approaches. The study used annual data for the period 1996 to 2017, which was obtained from the International Labour Organization (ILO) and the World Bank database of the World Development Indicators of 2018. The study estimated the random effects and fixed effects models. Importantly, instrumental variable-fixed effects regression was estimated to control for the potential endogeneity in the regression. The study findings indicate that unemployment in the EAC is likely to decrease with sustained economic growth and increased supply and access to private sector credit while, on the other hand, increased trade openness and gross national expenditure are likely to exacerbate the unemployment problem. Therefore, the study recommends measures to increase economic growth (such as promoting high productivity industries with high employment intensity), enhance competitiveness and reasonable protection of infant firms (e.g., through subsidized credit), and enhance supply and access to credit by the private sector (such as risk insurance and reduction of interest rates).

Keywords: unemployment, panel data, East African Community.

JEL Code: E24, J01 J2.