The Dynamic Effect of Unemployment Rate on Per Capita Real GDP in Iran

Abstract

Unemployment is an important issue in developing economies. High unemployment means that labor resources are not being used efficiently. In this research, the dynamic effects of unemployment rate on per capita real GDP in Iran are investigated during the period 1971 to 2006 using an Auto-Regressive Distributed Lag (ARDL). Also in this model, the physical capital, the consumer price index and the ratio of government expenditure to GDP as control variables have been considered. The findings show that the unemployment rate has a significant and negative effect on per capita real GDP in long-run and short-run. The value of error correction coefficient is equal to -0.48 implying that around 95% of the per capita real GDP adjustment occurs after two years.