Does government expenditure reduce unemployment in Egypt?
Journal of Economic and Administrative Sciences
ISSN: 2054-6238
Article publication date: 1 October 2020
Issue publication date: 6 August 2021
Abstract
Purpose
This research seeks to empirically examine the impact of government expenditure on the unemployment rate in Egypt during the period of 1980–2017. In addition, it examines whether the distinction between discretionary and nondiscretionary items of government expenditure have a different effect on unemployment.
Design/methodology/approach
The study employs the Johansen cointegration test to ensure the long-run equilibrium relationship among the variables, then the vector error correction model (VECM) to explore the dynamic short and long-run effects.
Findings
The empirical results of this research reveal that increasing government expenditure causes an increase in the unemployment rate in the long-run. Both discretionary expenditures and nondiscretionary expenditures increase the growth of unemployment by approximately the same coefficient. The worsening impact of discretionary expenditures on unemployment is highly attributed to the compensation of employees and the government subsidies. Investment expenditure has an insignificant effect because of its minor percentage in government expenses.
Practical implications
Redirecting the unnecessary expenditures toward labor-intensive public investments is recommended, in addition to reducing domestic and foreign debts. The government has to work hard to increase the economic growth rate, as it has a vital role in reducing unemployment.
Originality/value
This study is one of the first attempts to analyze the effect of government expenditure on the unemployment rate in Egypt. Moreover, this research distinguishes between the effects related to discretionary and nondiscretionary items of government expenditure.
Keywords
Citation
Abouelfarag, H.A. and Qutb, R. (2021), "Does government expenditure reduce unemployment in Egypt?", Journal of Economic and Administrative Sciences, Vol. 37 No. 3, pp. 355-374. https://doi.org/10.1108/JEAS-01-2020-0011
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited