Analyzing the Consequences of Long-Run Civil War on Unemployment Rate: Empirical Evidence from Afghanistan

Abstract

This article aims to uncover the asymmetric labor-market consequences of the long-run civil war in Afghanistan by employing a non-linear autoregressive distributed lags (NARDL) model and an asymmetric causality technique over the period from 2004Q3 to 2020Q4. The findings from the NARDL model reveal that the positive asymmetric shocks from the cost of war, GDP growth, final government expenditure, foreign direct investment, and the rule of law significantly decrease the unemployment rate, while their negative asymmetric shocks increase the unemployment rate in the short and long runs. Innovatively, the composite financial inclusion index has been incorporated into the model, which provides interesting results. It demonstrates that enhancing the outreach of financial services plays an important role in reducing the unemployment rate during wartime in Afghanistan, while its exclusion is found to increase the unemployment rate both in the short and long runs. Moreover, the results of the asymmetric causality test reveal that an asymmetric causality runs from both the positive and negative components of the cost of war, the composite financial inclusion index, GDP growth, foreign direct investment, inflation rate, population growth, and the rule of law to the unemployment rate, while no evidence is found to support a causality nexus between the unemployment rate, final government expenditure, and the secondary school enrollment rate. The results entail several policy implications that are discussed.