L.L.M. Madushani, M.A.Y.D. Madurapperuma 

Abstract

This study aims at investigating the determinants of unemployment in Sri Lanka over a period of 1990-2020 by examining the empirical relationship among the unemployment, gross domestic product, inflation, foreign direct investment, population growth, and exports. A macroeconomic factor model is employed using the annual time series data. The Autoregressive Distributed Lag (ARDL) approach is used to test the relationship between the unemployment and its determinants. The study identifies that the gross domestic product, foreign direct investment, population growth, and export have significant impact on unemployment, while inflation shows to be having no significant explanatory power in
determining unemployment in the short run. In the case of the long-run relationship, the study finds that the gross domestic product, inflation, foreign direct investment, and population growth have a statistically significant explanatory power of unemployment, while exports show an insignificant result in the long run. The CUSUM and CUSUMQ show that the constructed ARDL model is stable within the 5% of critical bounds.

Keywords: Inflation, Gross Domestic Product, Export, Foreign Direct Investment, Population Growth