Youth Unemployment and Economic Growth in South Asia: Policy Implications for Stability and Sustainable Development

Abstract

Youth unemployment poses significant challenges to economic growth and social stability in South Asia, particularly in Pakistan, India, and Bangladesh. This study uses System Generalized Method of Moments and Dynamic Panel Threshold Models to examine how youth unemployment impacts GDP growth and reveals key threshold effects. Results show that a 1% rise in YU reduces GDP per capita growth by 0.20% on average across the region, with declines reaching 0.30% when unemployment exceeds a 17% threshold. Education are positively correlated with GDP growth 0.16%, while GD in employment contribute to a 0.13% GDP decline for each 1% increase in disparity. Inflation and FDI further influence growth, with inflation reducing GDP by 0.09% and FDI increasing it by 0.11%. Comparative analysis shows that despite India’s relatively higher educational attainment, labor market mismatches persist, leading to high rates of educated youth unemployment. In Bangladesh, remittances offer economic stability amid limited domestic job opportunities Unlike previous study that finds teenage unemployment distinctly, our investigation shows a precarious joblessness threshold of 17%, at which economic instability accelerates. Using Threshold Models System and GMM, we build a non-linear association among YU and GDP growth, providing empirical evidence in favour of specific policy regulations. Findings highlight the importance of targeted labor market reforms, educational alignment with job market demands, and policies to reduce gender disparity in employment to maximize the region's youth potential.