TRADE BALANCE AND UNEMPLOYMENT IN EURO REGION: A VECTOR ERROR CORRECTION MODEL APPROACH

Authors : Osama SHAİKH, Zubair Arif SHAH

Pages : 11-26

View : 34 | Download : 33

Publication Date : 2023-06-30

Article Type : Research Paper

Abstract :Discussing the various aspects of the growing unemployment rate, the debate of protectionism vs free trade, the rising call for \`trade is bad\`, and \`trade is eating jobs\`, we tried to finally establish a bivariate model linking trade balance and un-employment rate in the Euro Area by taking the quartile time-series data from 2008: Q1 – 2021: Q3. The paper studies the impact of the trade balance on the un-employment rate in the short as well as long-run using the VEC model. The estima-tion of Johansen\`s cointegration test resulted that the model is cointegrated in the long and with a 1 percent rise in the trade balance, the unemployment is reduced by 2.52 percent with the statistical significance of 1 percent. However, the Wald test rejected the presence of any short-run causality between the considered variables.
Keywords : Trade Balance, Unemployment, Euro Area, Cointegration, and VECM