FISCAL POLICY FOR GROWTH AND EMPLOYMENT GENERATION IN PAKISTAN

This study examines the long run relationship between fiscal policy and unemployment for the country like Pakistan. The Johansen co-integration approach has been used to inspect the relationship between the fiscal variables and unemployment. The yearly data has been used from the period 1980 to 2010. The results of co-integration have indicated the long-run association between the fiscal variables and unemployment. Government expenditures and inflation both has shown positive relationship with unemployment. Whereas foreign direct investment, growth rate and tax revenue have shown negative relationship with unemployment. The Vector Error Correction Model (VECM) shows the disequilibrium factor and these disequilibrium variables will come towards equilibrium after the time period of six years. Foreign Direct Investment (FDI) has shown negative relationship with unemployment. This indicates that FDI is an effective tool against unemployment. There is need to create sound and fearless environment for the foreign investors, so that they invest in different business and projects. Due to their investment employment opportunities should be created in the country and unemployment will decrease.