Objectives: Whether unemployment is affected by trade openness in Bangladesh is the main objective of this study. We further determine the relationship between the public expenditure on education and unemployment.
Methods/Statistical Analysis: Applying VECM we find the relationship between unemployment and trade openness taking time series data from 1990 to 2016 for Bangladesh. Here, public expenditure on education used as control variable. ADF test use for unit ischolar_main and Johansen co-integration test to find the co-integration among the variables. Finally, we consolidate our results using Jarque Bera test for normality assumption and Breush-Godfrey Serial Correlation LM test for measuring autocorrelation.
Findings: The findings reveal that there is significant co-integration between trade openness and unemployment. In the long run, public frequent expenditure on education lead to a decline in unemployment, but trade openness policy is associated with an increase in unemployment. However, the initial impact of openness captured by short-term dynamics is observed also to increase unemployment while public expenditure on education cannot impact the country’s unemployment in short run. Again further analysis finds that the short term shock is restoring to the equilibrium and the most effective response to restore the system to equilibrium is trade openness. But public expenditure on education has been founded no influence on restoring equilibrium.
Application/Improvements: So, following the result, the policy maker should divert from trade liberalization to reduce unemployment from the country and public education expenditure should have more consideration.