Globalization and Macroeconomic Instability: Evidence from Unemployment in Pakistan

Growing population in the present globalized world is a challenge for the developing to engage the increasing labour force in productive environment. The creation of new employment opportunities is not easy to handle with existing resources (lack of capital both physical and financial) and became a more intense challenge for policy maker. Fairley free transaction also affect employment/unemployment in developing countries. Therefore, this study aimed to examine the impact of globalization on unemployment in case of Pakistan for the period of 1980-2017. Globalization is measured by three different forces i.e. Trade flows, FDI flow and Remittances flow. To estimate the responsiveness of unemployment to globalization ARDL co-integration techniques is employed. Bound test confirmed co-integration relationship between the variables under consideration. The results of short run and long run estimates showed that globalization forces affected unemployment in Pakistan. Globalization in the shape of trade affects unemployment directly while the impact of remittances is negative to unemployment. The impact of FDI is positive but insignificant. Therefore, this study suggests that proper attention should be paid toward policy formulation regarding trade and remittances inflow to increase employment opportunities in Pakistan. Globalization should be perused with adequate policies that will certainly smooth macroeconomic environment of Pakistan.