The Effects of Unemployment on Economic Growth in Saudia Arabia in the period 1995-2023

This study examined the relationship between unemployment and economic growth in Saudia Arabia for the period 1995 to 2023. The study utilized co-integration and error correction model approach. Although the unit root tests showed that the variables were integrated of different orders, the Johansen co-integration result showed that the variables were co-integrated. This study has revealed that unemployment, growth in government expenditure and gross fixed capital formation, population growth and education among others are significant explanatory variables of economic growth in Saudia Arabia under the period of study. Also, the result of the Error Correction Model analysis (ECM) shows that the unemployment has a negative and insignificant impact on economic growth over the period under study. Suggesting that higher unemployment leads to decreased GDP growth, indicating that unemployment rate increases economic growth becomes decline. The results of the study, show that, there is no causality relationship between unemployment and economic growth over the period under study. In addition, the results of causality test show that there is evidence of unidirectional causality running from growth government expenditure, the gross fixed capital formation, education (literacy rate) and population growth to economic growth (GDP) at different confidence and level of significance in Saudi Arabia. Moreover, this study present evidence that, bidirectional causation between unemployment and growth of population was found in Saudia Arabia. To increase economic growth, Saudi Arabian government should identify measures to reduce the unemployment rate and improve country's economic growth. For example, improving the quality of education, skills training, and implementing employment policies. The contribution of the study is the confirmation of the existence of the correlation of unemployment with the mentioned development indicators, and the validity of Okun's Law also hold on Sudia Arabian economy.