Economic Growth, Investment, Population Growth and Unemployment in Ethiopia

Abstract

The study examines the correlation between economic growth, investment, population growth and unemployment in Ethiopia. For the purposes of this study, secondary time series data collected from the National Bank of Ethiopia, IMF and World Bank databases were used. The study extracts the perceived relationship between the variables through principal component (PCA) analysis. Both the Kaiser-Meyer-Olkin measure of sampling adequacy and Bartlett’s test of sphericity were used to determine the appropriateness of the dataset for PCA. The results revealed that an increase in unemployment is positively correlated, but in the opposite direction to economic growth, investment, total population and the working-age population. On top of the rapid spread of COVID-19, the present protests as a result of the political instability and ethnic problems across the country will lead to an increase in unemployment and the loss of many lives. Policymakers therefore need to emphasize and assure an increase in economic growth and investment in order to create more jobs in line with the increasing demand for jobs, particularly by young people. Moreover, the government must address the ongoing ethnic problems and political instability before it hits the economy adversely.