eco analysis final project

7/30/2019 Eco Analysis Final Project

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Relationship between GDP, Unemployment and corruption

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Introduction

During the early stages of the most recent economic recovery, there has been much

discussion regarding the relationship between economic growth and employment.

Though the unemployment rate is considered by many to be a lagging indicator, there

is some disagreement as to whether employment itself is a coincident or lagging

economic indicator. For example, in the early 1990s, the unemployment rate

increased for about a year following the end of the previous recession. Coming out of

a recession, companies are thought to be reluctant to hire many more workers until

they are convinced about the sustainability of a new economic recovery while people

who had left the labor force during the recession return to seek to find jobs.

Unemployment is one of the biggest problems of Pakistan. A person is who has

ability to do work and is willing to do work, is unable to get job opportunity. In the

current situation more than 30 lac people are unemployed in Pakistan

and unemployment ratio is more than 12%. The biggest reason of unemployment in

Pakistan is concerned with the backwardness of agriculture sector. Agriculture is the

biggest sector of our economy that contributes 20.9% to GDP and 44% people get

jobs from this sector directly or indirectly. Unemployment in this sector is from two

sides. First is due to the adoption of latest machinery and capital intensive technology.

Due to this, demand for labour has been decreased. Second is the backwardness of

this sector. There is less availability of fertilizers, pesticides, and quality seeds,

absence of land reforms and lack of agriculture education. Due to all these factors

agriculture sector is not expanding and there is general and hidden unemployment.

Industrial sector is the second largest sector of our economy and contributes 19% to

national income. This sector should employ a large number of labors. But due to

backwardness it is employing a small number of people. Due to electricity breakdown

already established industry is deteriorating, resulting in the

prevailing unemployment ratio. High cost and low quality are responsible for less

demand for our agricultural and industrial items. Because of less demand of such

kinds of goods both the domestic and international producers are losing their interest

in production.


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The effect of corruption on growth has frequently been analyzed. The origin of this

debate can be found in Mauro (1995), who argues that corruption is mainly caused by

trade restrictions, subsidies, price controls, multiple exchange rate practices and

foreign exchange allocation schemes, and sociological factors and shows that

corruption lowers investment and thereby retards economic growth. Svendsen (2003)

provides similar conclusions, arguing that low-level corruption countries have high

GDP levels due to efficient collective good provisions. Similarly, Ehrlich and Lui

(1999) show that corruption has a negative effect on both growth and GDP per capita.

Also, Djankov, McLiesh and Ramalho (2006) show that the relationship between

more business-friendly regulations and higher growth rates is consistently significant

in various specifications of standard growth models. While Mauro(1995) argues that

corruption decreases growth by decreasing investment, Meon and Sekkat (2005) and

that corruption has a negative effect on growth independently from its impact on

investment.

So far, the effect of corruption on growth and GDP has been extensively analyzed and

quantified. However, the effect of corruption on other macroeconomic indicators has

not been studied in equally great detail.


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Methodology

Assumptions:

Ha There is a relationship between GDP growths Rate and increasing unemploymentrate.

Hb There is a relationship between GDP growth rate and corruption

Hc There is a relationship between unemployment and corruption.

Method of Data Collection:

In this research the population was the overall GDP, Unemployment and corruption

index of Pakistan from its inception. In the over all analysis there are many of the

factors which were involved like GDP, culture, Literacy rate, Distribution of wealth,

unemployment and corruption indexes. We have collected the data from the

government sources, Google, wiki-pedia and encyclopedia.

Data Collection

The sampling had done from the statistical data of GDP growth rate as well as the

unemployment and corruption indexes of Pakistan. The data was gathered from State

Bank of Pakistans website, statpak.gov.pk and CIA Fact-book

Sampling Technique:

The several economic indicators such as GDP, Unemployment and Corruption

indexes are taken to compare with the Pakistani context. The time series sampling

technique is used in this research.

Research model:

GDP

UnemploymentCorruption


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Data Analysis

Data:

Year GDP Unemployment Corruption2011 3.04 5.6 2.5

2010 4.8 15 2.3

2009 4.3 14 2.5

2008 2.7 7.4 2.4

2007 5.3 6.5 2.2

2006 6.6 6.6 2.1

2005 6.6 8.3 2.12004 6.1 7.7 2.5

2003 5.5 7.8 2.6

2002 3.11 8.051 2.6

3.04

4.84.3

2.7

5.3

6.6 6.6 6.15.5

3.11

0

1

2

3

4

5

6

7

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

GDP

GDP


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5.6

1514

7.46.5 6.6

8.37.7 7.8 8.051

0

2

4

6

8

10

12

14

16

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Unemployment

Unemployment

2.52.3

2.52.4

2.22.1 2.1

2.52.6 2.6

0

0.5

1

1.5

2

2.5

3

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Corruption

Corruption


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The graphical representation of GDP growth rate, unemployment rate and corruption

indexes show the following results:

There is a negative relationship between the GDP growth rate andunemployment rate. As the GDP growth rates go up, it results in decrease in

unemployment rates.

There is a positive relationship between unemployment rate and corruptionindexes. As the unemployment rates go up, it results in higher corruption

indexes.

There is negative relationship between GDP growth rate and corruptionindexes. As GDP growth rates go up, it results in decrease in corruption

indexes.

0

2

4

6

8

10

12

14

16

18

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Corruption

GDP

Unemployment


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Conclusion

GDP for many years has been used as a Key Indicator for Economist and

Governments as a Lead in Indicator for what will be a Decrease in the

Unemployment rate. GDP should be broken up as too a Portion derived by

Production of Goods and a Portion Derived by Services. The Services Section should

be Broken up to those Services provided by human Labor and those attained by

Electronic Services that require, no to minimal human labor. This will provide a better

indicator for increase in GDP that will lead to a reduction in the unemployment rate.

Unemployment rate is the key indicator in determining the corruption indexes as it

shows that the higher unemployment rate will lead to high level of corruption in the

country. In Pakistan there is high level of unemployment rate so the corruption rate is

also high in the country. The government should always try to open job opportunities

for the people of the country as it will also help them to reduce corruption indexes.

GDP growth rate is also the indicator of corruption indexes as it shows the negative

relationship in them. The government should make the efforts to increase the GDP

growth rate as it will decrease the corruption indexes. If there will low GDP growth

rate in the country it will make the people of the country to get engaged in the

criminal activities which will affect the economy of the country. So, the government

should increase the countrys GDP as it will allow them to decrease the corruption

indexes.


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Bibliography:

CIA fact book Djankov, S., McLiesh, C. and Ramalho, R.: 2006, Regulation and Growth,

World Bank .

Ehrlich, I. and Lui, F.: 1999, Bureaucratic Corruption and Endogenous Eco-nomic Growth, Journal of Political Economy 107(6), 270{293.

Iqra Sohail, Hurmat group (2012) Mauro, P.: 1995, Corruption and Growth, Quarterly Journal of Economics

110(3), 681{712.

Meon, P.-G. and Sekkat, K.: 2005, Does corruption grease or sand the wheelsof growth?, Public Choice 122, 69{97.

Svendsen, G.: 2003, Social Capital, Corruption, and Economic Growth,Working Paper 03(21).

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