The effect of unemployment rate on gross domestic product: Case of south africa

Abstract

Unemployment is the macroeconomic problem that affects individuals most differently and severely.This study investigates the effect of unemployment on gross domestic product in South africain. The annual time series used for the estimation cover the period 1980-2011. Using Augmented Dickey-Fuller (ADF) stationarity test, the variables proved to be integrated of order one. Johansen cointegration test was applied to determine the presence of cointegrating vectors in the variables. Also Granger causality test was applied, it was found that there is no causality found between unemployment rate and GDP growth. Finally, this study encourages all policies on economic growth with the idea that growth will bring employment in South African economy.