Modelling Economic Determinants of Youth Unemployment in Kenya

Abstract

Youth unemployment is a challenge to both developing and developed countries. The “youth bulge” and attending challenges of unemployment resulting in social evils and political violence (rioting, civil war and terrorism) are evident in Kenya. This study therefore analyzes the economic determinants of youth unemployment in Kenya using macroeconomic data from 1979 to 2012 by investigating empirical relationship among youth unemployment, gross domestic product, population, foreign direct investment, and external debt. The study used times series Autoregressive Distributed Lag model (ARDL) to test the long run effects of economic determinants of youth unemployment. At 5% significance level, empirical results indicate that unit increase in population by 1.1%; unit increase in foreign direct investment reduces youth unemployment by 0.00024%; unit increase in previous youth unemployment rate reduces current unemployment rate by 0.12%. Contrarily, 1% gross domestic product increases youth unemployment rate by 0.00559%. The study revealed that population growth; foreign direct investment, gross domestic product, and external debt have long run relationship with youth unemployment rate. This study therefore gives insights into possible solutions considering interplay of macroeconomic factors.