Investigating Impact of Urbanization on Urban Unemployment in Pakistan: An Empirical Analysis

Abstract

In Pakistan, urbanization represents prosperity on one side while on the other hand urbanization enhances urban unemployment. This study explores the impact of urbanization along with foreign direct investment, consumer price index and trade openness on urban unemployment in Pakistan. Like other emerging nation Pakistan is also facing severe urban unemployment problem. In Pakistan, Urbanization, and urban unemployment both are increasing. As trade openness helps country to make optimum use of resources and foreign direct investment allow resources to transfer and exchange of skills and knowledge through which country can get access to new technologies and skills so trade openness and foreign direct investment have positive impact on urban employment chances. A time series secondary data from 1982 to 2014 have been collected. Augmented dickey fuller test is applied to test the stationarity of the series. ADF suggests applying Auto regressive distributive lag model. The results of long run estimation confirmed that Urban Population has positive and significant impact on urban unemployment. Further, Short run ECM model also confirmed the long run relationship true by incorporating standard diagnostics. Results indicate that trade openness, foreign direct investment and consumer price index all have negative and significant impact on urban unemployment. Government must adopt rules for attracting foreign investors to come and invest in our country in order to enhance foreign direct investment. Policy makers should apply such suitable strategies which move towards urban areas growth and eradicate urban unemployment such as government apply suitable strategies to control population growth rate and encourage labor intensive technology.