A VAR Model Of The Relationship Between The GDP Growth And Unemployment Rates

Abstract

This paper concludes that the failure to realize the anticipated job growth, following the enormous fiscal injection since 2001 is mostly due to three reasons: (1) The pervasive low investors’ confidence had drastically reduced the investors’ propensity to invest to the extent that little or no investment could take place, even if interest rate, which had fallen to its lowest level could be allowed to fall further. (2) Many industrial sectors, still saturated with excess technological investment acquired in 1998-99, in their attempt to remain Y2K compatible, were trying to make effective use of their existing investment and hence had no justification for further investment, and this constrained their ability to expand production and create jobs. (3) The pressure to prevent corporate profits from falling increased the urge to move industrial plants overseas, especially to low wage countries.