How to Create Job Opportunities in Under-developed Countries, Taking In View Pakistans Perspective

RESEARCH REPORTGroup LeaderUzair Basharat

Group MembersMehboob UR RehmanM.Faisal Khan

SUBMITTED TO Sir Asif Shamim

ABSTRACTThe objective of this research paper is to discuss in depth how to create job opportunities in third world countries. Cointegration results confirm that there exist significant positive long term relation between job opportunities, investment and labor force participation. The growth rate of job opportunities in Pakistan is increasing with a very slow rate, not sufficient to satisfy the majority of the work force of Pakistan. Causality analysis confirms bidirectional causality from job opportunities to investment and government policies. Sensitivity analysis confirm the results are robust. It is suggested that government should try to attract more and more investors in Pakistan in order to create more and more job opportunities in Pakistan for that government has to suppress the issue of terrorism as soon as possible and finally completely eliminate the cancer of terrorism from Pakistan.. Keywords Job opportunities, Investment, labor force participationJEL CLASSIFICATION: F11, F18, E148, F29

INTRODUCTION

Many studies have been done to find out how to create job opportunities in third world countries but there are very few studies done on how to create job opportunities in Pakistan, keeping in view the dynamics of Pakistan. Unemployment is becoming a major concern in the third world countries due to corruption, bad governance and law and order situation and due to these reasons investors feel that their investment would not be safe. Third world countries economies dont have the potential to create employment opportunities that satisfies and address the issue of unemployment.So when we talk about unemployment in Pakistans perspective it is concerning many people in Pakistan. Investors hesitate to invest in Pakistan because of many reasons few of them are as following political situation, strikes, ransom, corruption, Pakistan we need to create job opportunities so that the issue of unemployment is addressed. The current government in Pakistan has launched some employment programs but they are not effectively addressing the issue of employment. What it is doing that it is compensating a small part on the unemployed workforce while leaving the majority of unemployed workforce unaddressed. We not only need to address the issue of unemployment to enhance our economy and make it stable or to increase the standard of living of the people of Pakistan but we also need to address this issue because it is correlated to terrorism which is considered as an cancer for the existence of Pakistan. In this research paper we will be doing an in depth analysis on how did other third world countries created job opportunities in their countries and will to correlate with Pakistan and what is its impact on the economy of a country. We will be using time series data to test our results. For further authentication of our research paper we will be testing the data from different softwares which includes SPSS and Eviews. The sources of data are both primary and secondary.

THERORITICAL BACKGROUND Over the past decade, world trade has expanded significantly. By 2007, global trade had reached more than 60 per cent of world GDP, compared with less than 30 percent in the mid-1980s. Few would contest that increased trade has contributed to global growth and job creation. However, strong growth in the global economy has not, so far, led to a corresponding improvement in working conditions and living standards for many. Absolute poverty has declined, thanks to the economic dynamism of recent years, the efforts of private companies, migrant workers and their remittances and the international development community. Nevertheless, in many instances, labor market conditions and the quality of employment growth have not improved to the same degree. In many developing economies job creation has mainly taken place in the informal economy, where around 60 per cent of workers find income opportunities. However, the informal economy is characterized by less job security, lower incomes, an absence of access to a range of social benefits and fewer possibilities to participate in formal education and training programs in short, the absence of key ingredients of decent work opportunities.These persistent labor market vulnerabilities have prevented developing countries from fully benefiting from the dynamics of globalization. Despite the fact that the informal economy is typically characterized by strong economic dynamism, rapid entry and exit and flexible adjustment to change in demand, informality limits the potential for developing countries to benefit fully from their integration into the world economy. In particular, large informal economies prevent countries from developing a sizeable, diversified export base, as the capacity of companies to grow is constrained. Notwithstanding the well-known difficulties of securing reliable data on informality (as explained in this study), the work reported here suggests that countries with larger informal economies experience lower export diversification an increase in the incidence of informality by 10 percentage points is equivalent to a reduction in export diversification of 10 per cent. Informal employment makes it difficult for workers to acquire formal generic skills that can be used productively in a variety of occupations.Similarly, firms operating in the informal economy are often small and face barriers to growth, preventing them from offering high-quality goods and services. And when economies are opening up, the informal economy often acts as an adjustment buffer for workers who lose their jobs, further depressing decent working standards in a manner that would not occur if alternative employment opportunities were available in the formal economy. In a nutshell, informal sector firms lack the capacity to generate sufficient profits to reward innovation and risk-taking two essential ingredients for long-term economic success. Estimates suggest that countries analyzed in this study lose up to 2 percentage points of average economic growth due to their informal labor markets.Finally, globalization has added new sources of external economic shocks. For instance, global production chains can transmit macroeconomic and trade shocks through several countries at lightning speed, as observed in the current economic crisis. Moreover, in such circumstances developing countries run the risk of entering a vicious circle of higher rates of informality and rising vulnerability. Countries with larger informal economies experience worse outcomes following adverse shocks. Indeed, estimates suggest that countries with above-average sized informal economies are more than three times as likely to incur the adverse effects of a crisis as those with lower rates of informality. Addressing informality is, therefore, not only a matter of concern in terms of social equity. It also helps to improve a countrys dynamic efficiency, as the informal economy constitutes a drag on the capacity to foster high value-added production and compete in the world economy. Encouraging formalization of both workers and firms will also help countries to raise more fiscal revenue, improving their ability to stabilize their economies and mitigate the adverse consequences of external shocks. As the current crisis has demonstrated, countries already characterized by vulnerable labor markets are also the most poorly placed to respond to deteriorating economic conditions. Reducing the size of the informal economy is therefore a key policy objective from a developmental perspective.This study argues that it is possible to address these challenges and lower informality rates in developing countries, despite the additional pressure that heightened globalization can impose on labor markets. Indeed, trade reforms have the potential to yield long-term labor market benefits with the right opening strategy including the timing of reforms and the enhancement of support policies such as Aid for Trade combined with an appropriate mix of domestic policies. A successful policy approach requires an adequate understanding of the transmission channels through which labor markets are affected by trade reforms. The challenges arising from the existence of informal economies need also to be identified in terms of how they hamper fuller participation in international trade, lower export diversification and weaken resilience to economic shocks.

EMPERICAL STUDIESGlindling et al (2013). The objective of this research paper is to find out self-employed heterogeneity in under-developed countries. The data has been collected from 1984 to 2010. These data include four sets of consistently defined and coded variables which includes demographic variables, education, labor force and household per capita consumption as independent variables and job creation as dependent variable. The results also highlight the potential benefits of policies that facilitates shifts in the nature of work, first from agricultural labor into non-agricultural self-employment and then into wage and salaried jobs.Sadruddin (2013) the purpose of this research is to find out the effects of tourism on the standard of living of poor people. The research paper attempts to suggest strategies to reduce poverty in the developing countries through adaptation of pro-poor tourism techniques. The data has been 2006 to 2012. Single case of Sindh has been taken. Tourism techniques have been contextualized from Sindh point of view. Effective marketing can not only bring people from Sindh but rest of the world and can also help to reap economic benefits for poor.Hassan et al (2012) the objective pf this research paper is to discuss the role of MNCs in under developed countries. The study made use of secondary data sourced from the central bank of Nigeria statistical bulletin and the National Bureau of statistics from 1970 to 2011. The model of the study has as its dependent variable the Gross Domestic Product (GDP) and its explanatory variables were Foreign Direct Investment (FDI).Using ordinary least square (OLS) multiple regression techniques. The study reveals that there is strong positive relationship between GDP and FDI. So it is recommended that efforts should be geared towards creating an environment for FDI to thrive in the economy.Miliaras (2012) Establishing an Evidenced- Based Link between Developing-Country Gazelles, Job Creation, and Poverty Reduction Matters. By using data from 2000 to 2011.Using Gazelles as independent variable and job opportunities as dependent variable. The technique that has been used here is in depth analysis of SME data which stored by developing countrys banks investment funds and other institutions. Results indicate positive relationship between Gazelles and job opportunities in the third world countries.Ayyagari et al (2011) the purpose of this research paper is to find out that up to what extent the small and medium enterprise sector creates job opportunities. By using time series data from 1990 to 2010.In this research paper small and medium sector enterprise has been taken as independent variable and job creation is taken as dependent variable. The technique that has been used in this research paper is regression analysis. Results indicate that small firms are important contributors to total employment and job creation. It is recommended that a need for greater focus on large, mature firms which have a notable share of employment and also have higher productivity growth compared to small firms.

Samli (2009) Examine how Entrepreneurs can create job opportunities in the third world countries by using time series data from 2004 to 2008.By keeping unique entrepreneurial skills as Independent variable and Job opportunities as dependent variables. Results indicate that there is direct relation between unique entrepreneurial skills and Job creation in the third world countries. So governments in third world countries should create environment that promotes entrepreneurs in their respective countries.

Awuah et al. (2009) Examine how globalization can create job opportunities in the third world countries by using time series data from 2001 to 2009.By keeping abilities of less developed countries as Independent variable and Job opportunities as independent variables. Results indicate that there is direct relation between abilities of less developed countries and Job creation in the third world countries. So governments in third world countries should create environment that promotes entrepreneurs in their respective countriesSuden et al. (2008) Examine how the global opportunities in It-based services can create job opportunities in the third world countries by Assessing and enhancing country competitiveness using time series data from 2004 to 2008.By keeping global opportunities in It-based services as Independent variable and Job opportunities as dependent variables. Results indicate that there is direct relation between global opportunities in it-based services and Job creation in the third world countries. So governments in third world countries should create environment that promotes global opportunities in It-based services in their respective countries.Bagherinejad (2006) Examine how Cultivating technological Innovations can create job opportunities in the third world countries by using time series data from 1999 to 2006.By keeping Cultivating technological Innovations as Independent variable and Job opportunities as dependent variables. Results indicate that there is direct relation between Cultivating technological Innovations and Job creation in the third world countries. So governments in third world countries should promotes cultivating technological Innovations in their respective countries.

Arora et al. (2004) Examine how THE GLOBALIZATION OF THE SOFTWARE INDUSTRY can create job opportunities in the third world countries by using time series data from 1990 to 2004.By keeping GLOBALIZATION OF THE SOFTWARE INDUSTRY as Independent variable and Job opportunities as dependent variables. Results indicate that there is direct relation between GLOBALIZATION OF THE SOFTWARE INDUSTRY and Job creation in the third world countries. So governments in third world countries should create environment that promotes GLOBALIZATION OF THE SOFTWARE INDUSTRY in their respective countries.

Strzelecki (2004) Examine how opportunities and limitations of corporate Social responsibility (CSR) can help in creating job opportunities in the third world countries by using time series data from 1990 to 2002 .By keeping limitations of corporate Social responsibility (CSR) as Independent variable and Job opportunities as dependent variables. Results indicate that there is direct relation between limitations of corporate Social responsibility (CSR) and Job creation in the third world countries.

Castells (1999) Examine impact of Information technology and globalization on social development in the third world countries by using time series data from 1990 to 2005.By keeping Information technology, globalization as Independent variable and social development as dependent variables. Results indicate that there is direct relation between Information technology, globalization and social development in the third world countries. So governments in third world countries should create environment that promotes Information technology, globalization in their respective countries.Schultz (1961) Examine how investment in human capital can create job opportunities by using time series data from 1956 to 1960.By keeping investment in human capital as Independent variable and Job opportunities as independent variables. Results indicate that there is direct relation between investment in human capital and increasing the job opportunities. So governments in third world countries should create environment that promotes investment in human capital in their respective countries.

METHODOLOGYThe model for our research paper is as following

EMPR= +INV1+LFP2 +t

In our model job opportunities (EMPR) is taken as dependent variable. On the other hand investment (INV) and labor force participation (LFP) are taken as independent variables.15 years time series data was used from 1991 till 2006, to find the impact of investment, terrorism and government policies of number of job opportunities created in Pakistan. To analyze the data different statistical tests have been performed to establish the relationship between the given variables. Muliticollinearity, Granger causality, cointegration test, Auto correlation, Log model, Cusum, Cusum Q and chow break test have been used to get and in depth knowledge of the effects of variables on each other.

AUGMENTED DICKEY-FULLER TEST

All variables are non-stationary at levels and stationary at first difference. This implies that the combination of one or more of these series may exhibit a long run relationship.

REGRESSION MODEL UER= +INV 1+ LFP 2+ t VariableCoefficientt-StatisticProb.

CINVLFP-7.90141.30151.000000

-3.5213210.8783624.0114

0.00420.39700.0000

R-squared 0.107347Adjusted R-squared 1.000000F-statistic 2.31427Prob(F-statistic) 0.11745

UER= -7.90+1.3015 1+ 1.00 2Since the prob value is greater than 0.05 therefore, is ineffective and Adjusted R2 is also insignificant, other variables which are not present in the model will have negative impact on INV and LFP by 7.9014%.

LOG MODEL

VariableCoefficientStd. Errort-StatisticProb.

C2.22E-161.71E-150.1294750.8991

LOG(INV)9.62E-188.08E-170.1189330.9073

LOG(LFP)1.0000005.85E-161.71E+150.0000

R-squared1.000000Mean dependent var1.797835

Adjusted R-squared1.000000S.D. dependent var0.195909

S.E. of regression2.22E-16Sum squared resid5.92E-31

F-statistic3.89E+30Durbin-Watson stat1.333333

Prob(F-statistic)0.000000

LOG EMPR=2.22+9.22INV + 1.00LFP If INV increases by 1% then EMPR will increase by 9.22%. Unemployment rate will increase by 22.22 due to other factors. If LFP increases by 1% then Unemployment rate will increase by 1%

DOUBLE LOG MODEL

Log (UER)=0.769901+0.004746INV+0.166619LFPIf INV increases by 1% then EMPR will increase by 0.004746. If LFP increases by 1% then EMPR will increase by 0.166619%. Another variables had positive impact on EMPR by 0.769901%.

GRANGER CAUSALITY TESTS

Null Hypothesis:ObsF-StatisticProb.

LFP does not Granger Cause INV150.465910.5078

INV does not Granger Cause LFP1.356630.2668

EMPR does not Granger Cause INV150.465910.5078

INV does not Granger Cause EMPR1.356630.2668

UER does not Granger Cause LFP15NANA

LFP does not Granger Cause EMPRNANA

Since P value is greater than 0.1 both INV and LPF will cause each other.Since P value is greater than 0.1 both INV and EMPR will cause each other.

AUTOCORRELATION

Breusch-Godfrey Serial Correlation LM Test:

F-statistic4640.038Prob. F(1,11)0.0000

Obs*R-squared15.96203Prob. Chi-Square(1)0.0001

Since the P value is less than 0.1, so we accept our hypothesis and autocorrelation exists

CUSUM

Since blue line is below the red line it means that coefficients are not stable.

CUSUM QSince blue line is below the red line so there is a structural break from 2001 to 2006.

Chow break test

how Breakpoint Test: 2001 to 2006

Null Hypothesis: No breaks at specified breakpoints

Varying regressors: All equation variables

Equation Sample: 1991 to 2006

F-statistic1.120967Prob. F(6,11)0.4104

Log likelihood ratio9.542520Prob. Chi-Square(6)0.1453

Wald Statistic6.725801Prob. Chi-Square(6)0.3470

MULTICOLLINEARIT

VariableVarianceVIFVIF

C23.5494869.12792NA

INV0.1120885.5079431.023576

LFP0.04216471.276631.023576

The long-run coefficients of EMPR, INV and LFP both have expected sign and are significant. The long run coefficient of EMPR is positive and statistically significant. All VIF values are less than 10 that show no multicollinearity in the model.

CO-INTEGRATION TEST

HypothesizedNo. of CE(s)TraceStatistic0.05Critical ValueMax-EigenStatistic0.05Critical Value

None * 96.79054 47.85613 44.05000 27.58434 At most 1 * 52.74053 29.79707 37.68072 21.13162 At most 2 15.05981 15.49471 14.20886 14.26460At most 3 0.850947 3.841466 0.850947 3.841466

Starting with the null hypothesis of no cointegration among the variables, Trace statistics is above 5% critical value. Hence it rejects the null hypothesis of no co integration, in favor of general alternatives one cointeregating vector. Turning to the Maximum Eigen value test, the null hypothesis of no cointegration is rejected at 5% level of significance in favor of specific alternatives, that there is one cointegration vector. Thus, the results from both of two tests suggest that there exist a stable long run equilibrium relationship between Investment, labor force participation and employment rate.

Rolling window test

Conclusion and recommendations

Our study examines the impact of investment, labor force participation on number of job opportunities created in Pakistan. Results confirm that investment and labor force participation has positive impact on creating number of job opportunities in Pakistan. Cointegration confirms significant positive relationship between investments, labor force partcipation on number of job opportunities created in Pakistan in long run. Error correction model shows positive relationship between job opportunities in the short run. Stability analysis show that confidents are stable in the long run. Granger causality indicates bilateral causal relationship.

It is suggested that government should make policies that created ease for investors to run their operations in Pakistan and government should also resolve the issue of terrorism that is creating hurdles for investors.

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