A Flourishing or Faltering Economy: Unemployment Impacting Sri Lankan Economic Growth

Abstract

The primary goal of any economy is to achieve long-term economic growth while maintaining a stable rate of unemployment, which is a macroeconomic factor. Moreover, when unemployment rises, real Gross Domestic Product (GDP) falls short of potential GDP. Accordingly, the purpose of this study is to examine the impact of unemployment on the economic growth of Sri Lanka. By using data from the first quarter (Q1) of 2000 to the fourth quarter (Q4) of 2021 and Vector Error Correction Model (VECM) and Granger Causality are applied to analyse the impact of unemployment on economic growth. The findings indicates that there is a unidirectional causality between unemployment and economic growth, and that there is a long run relationship between these two variables, with both long-term and short-term negative impacts on economic growth in Sri Lanka. Macroeconomic policies need to be formulated to sustain the unemployment rate in line with the current economic realities of Sri Lanka for sustainable economic growth and significant contribution to the creation of new jobs and the expansion of existing employment in Sri Lanka.

Unveiling Sri Lanka’s brain drain and labour market pressure: A study of macroeconomic factors on migration

“…The stationarity of all variables has been established, as confirmed by the findings in Fig 3 . The VAR model is deemed stable when all the eigenvalues of its coefficient matrix are below one, as per the formal definition [ 20 , 46 , 48 ]. The S7 and S8 Appendices revealed that the eigenvalues in the researchers’ predictors fall within the unit circle; in Fig 3 , VAR model stratifies the stability criterion.…”

“…Redlin [3], Gunarathne and Jayasinghe [10], Bonifazi, Heins [18], Atigala, Maduwanthi [20], Gardiyawasam, Ganegoda [21] HEÀ !Migration…”

“…Stationarity and stability are crucial assumptions for both individual data variables and the system, supporting the validity of multivariate and bivariate modelling within the VAR model framework. The stationarity of all variables has been established, as confirmed by the findings in Fig 3 . The VAR model is deemed stable when all the eigenvalues of its coefficient matrix are below one, as per the formal definition [20,46,48]. The S7 and S8 Appendices revealed that the eigenvalues in the researchers' predictors fall within the unit circle; in…”

“…At the same time, poorer households rely on all family members to contribute to income [ 19 ]. According to the International Labor Organization (ILO), unemployment refers to individuals without jobs who have actively sought employment within the past four weeks [ 10 , 20 , 21 ]. The influencing factor for unemployment is “asymmetric capabilities” within the labour market, where a mismatch between employer demands and job seeker qualifications makes it difficult for candidates to find suitable employment in Sri Lanka.…”