Relation Between GDP Growth Rate and Unemployment Growth Rate In India Since The Reform Period

Abstract

This paper studied that growth of unemployment is decreasing at the rate of 0.677% per year during 1991-2014 insignificantly but its exponential declining growth rate is 0.033% which is significant. The unemployment growth rate series does not follow random walk and it has one downward structural break in 2010.The smooth cycle was obtained through Hodrick-Prescott Filter model.AR and ARIMA models of this series are nonstationary. On the nexus issue ,the study analysed that one percent increase in GDP growthrate led to 0.0579% decline in unemployment growth rate during 1991-2014 in India which is insignificant. The Okun’s law is verified but found insignificant. Both have bidirectional causality but Johansen cointegration showed insignificant. The VAR and VEC models are stable but VAR is converging and VECM is diverging where coefficient of error correction in the change of unemployment growth rate is very slow and insignificant. The same observations were found in the nexus between the GDP per capita growth rate and unemployment growth rate in India during 1991-2014