On the Determinants of Unemployment in Somalia: What is the Role of External Debt?

Abstract

The linkage between unemployment, inflation, GDP, and external debt spans several economic themes. Because unemployment remains a concern in the global economy, researchers and economists are focused on it. Other things being equal, it is widely acknowledged that achieving price stability will have a favorable impact on employment and economic growth, especially if the optimal threshold can be met. Meanwhile, the right balance remains elusive, as central banks around the world compete to increase employment while maintaining price stability. In this study, we analyze annualized data from 1991 to 2019 to try to understand how unemployment in Somalia responds to changes in the price level. To process the data collection, the ARDL model and the Bound test analytical tools were used. The parameter estimate implies that when the external debt changes by 1%, the jobless rate increases by 0.031%, according to the findings. GDP, on the other hand, had a negative but small impact on the unemployment rate, and was associated with a 0.59% decrease in the unemployment rate. We believe that, rather than depending simply on monetary targeting to balance unemployment, GDP, GDP deflator, and foreign debt, economic deepening can play a supporting role in sustaining an optimal inflation rate and a minimal unemployment level.