Exploring the governance-unemployment nexus: Insights from South Asia

This study investigates the relationship between governance quality and unemployment rates in South Asian countries from 2009 to 2023. Utilizing econometric methodologies, including Feasible Generalized Least Squares (FGLS) and Generalized Method of Moments (GMM), we analyze the impacts of governance factors—specifically the rule of law, government effectiveness, and voice and accountability—alongside traditional economic indicators such as GDP per capita. Our findings reveal that governance-related factors have a significant negative impact on unemployment, with improved rule of law and government effectiveness leading to lower unemployment rates. Conversely, higher political inclusiveness, as measured by voice and accountability, correlates with increased unemployment, indicating potential structural challenges associated with more democratic processes. Interestingly, GDP per capita shows a weak and statistically insignificant relationship with unemployment, suggesting that economic growth alone may not suffice in addressing unemployment issues. The study underscores the importance of effective governance and the potential trade-offs involved in political inclusiveness, providing essential insights for policymakers aiming to devise strategies that mitigate unemployment while fostering robust labor markets.