Understanding the Empirical Dynamics of Urbanization and Urban Unemployment in Pakistan

Abstract

With 226 million people, Pakistan is the 6th largest country in the world and has a 38% urban population. We have noted urban unemployment as a percentage of overall unemployment. In order to account for consumer price index, foreign direct investment, and trade openness in Pakistan, this study examines the empirical association between urbanization and urban unemployment using a time series covering the years 1980–2024. Through promoting resource use, information sharing, and approach to new technical inventions and innovations, trade openness and foreign direct investment have the potential to have a favorable impact on employment possibilities in metropolitan areas. The Augmented Dickey-Fuller (ADF) pre-estimation econometric model selection test, which tests the order of integration, determines the Stationarity of a series. The ADF's findings suggest applying the auto-regressive distributive lag model (ARDL). According to long-term regression with a level coefficient in the first stage of ECM, Pakistani urban unemployment rises significantly because of urbanization. The short-run ECM model provides a largely settled long-term error correction term. The study's conclusions show that the CPI, trade, and FDI are all considerably lower urban unemployment. The government ought to enact laws that would encourage foreign investors to make investments in our nation so that to increase FDI. Policymakers may implement effective plans like encouraging labor-intensive technologies and controlling population expansion to enhance urban development and reduce urban unemployment.