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Nexus between Unemployment, Income Inequality, Political Stability, and Economic Growth: An Empirical Study of the Nepalese Economy

Author

Listed:
  • Arjun Kumar Dahal

    (Tribhuvan University, Nepal)

  • Prem Bahadur Budhathoki

    (Tribhuvan University, Nepal)

  • Ganesh Bhattarai

    (Tribhuvan University, Nepal)

Abstract

This study aims to investigate the influence of political stability, unemployment, and income inequality on the economic growth of Nepal while also exploring the reciprocal impact of economic growth, unemployment, and political stability on income inequality within the country. It only uses secondary data from various World Bank reports and Nepal's economic surveys. It only covers 32 data points spanning from 1991 to 2022. The descriptive and exploratory research designs are used in this study. Simple statistical tools like correlation analysis, Unstandardized and standardized regression analysis, analysis of variance (ANOVA), residual statistics, histogram, and scatterplot for residual analysis are used in this analysis. Unemployment has negative and political stability positively impacts economic growth in Nepal. One percent increase in unemployment results in a 1.920 percent decrease in economic growth. Likewise, one percent increase in the political stability index results in a 0.804 percent increase in economic growth in Nepal. Unemployment hurts more on economic growth than income inequality in Nepal. Unemployment, political stability, and GDP growth are individually and jointly affected by income inequality in the nation. Political stability and economic growth decrease income inequality, but unemployment increases income inequality in the Nepalese economy. One unit increase in the political stability index and economic growth results in -4.356 and -0.117 unit decrease in income inequality in Nepal. The political stability index has a multiplier effect in decreasing income inequality. Unemployment causes income inequality. One unit increase in unemployment results in a 1.121 unit increase in income inequality. Unemployment has a multiplier effect on income determination in Nepal. About 39.7 percent variation in economic growth is determined by political stability, unemployment, and income inequality, but 46.7 percent in income inequality is determined by unemployment, economic growth, and political stability. Policymakers should consider a holistic approach that addresses income inequality, unemployment, and political stability to foster sustainable and inclusive economic growth. The abstract is not a substitute for the introduction.

Suggested Citation

  • Arjun Kumar Dahal & Prem Bahadur Budhathoki & Ganesh Bhattarai, 2024. "Nexus between Unemployment, Income Inequality, Political Stability, and Economic Growth: An Empirical Study of the Nepalese Economy," Valahian Journal of Economic Studies, Sciendo, vol. 15(1), pages 1-14.
    • Handle: RePEc:vrs:vaecst:v:15:y:2024:i:1:p:1-14:n:1001
    DOI: 10.2478/vjes-2024-0001
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    2. Martin Paldam, 1998. "Does Economic Growth Lead to Political Stability?," International Economic Association Series, in: Silvio Borner & Martin Paldam (ed.), The Political Dimension of Economic Growth, chapter 9, pages 171-190, Palgrave Macmillan.
    3. Ugyen Tenzin, 2019. "The Nexus Among Economic Growth, Inflation and Unemployment in Bhutan," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 20(1), pages 94-105, March.
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    More about this item

    Keywords

    income inequality; multiplier; unemployment; political stability; corruption;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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