MACROECONOMIC DETERMINANTS OF YOUTH UNEMPLOYMENT IN SRI LANKA: AN ARDL APPROACH (1990–2021)

Abstract

This study analyses the factors influencing youth unemployment in Sri Lanka from 1990 to 2021 by examining the empirical relationships among youth unemployment, Foreign Direct Investment (FDI), external debt, inflation, and labor force participation. While prior research has largely focused on general unemployment trends or specific macroeconomic indicators, limited attention has been given to a comprehensive analysis of the macroeconomic factors affecting youth unemployment specifically in Sri Lanka. To address this gap, secondary data were obtained from the annual reports of the Central Bank of Sri Lanka and the Sri Lanka Labor Force Survey reports for the specified period. The Autoregressive Distributed Lag (ARDL) approach was employed to identify significant determinants of youth unemployment. The findings indicate that FDI, GDP, external debt, and inflation are significant factors affecting youth unemployment in both the short run and the long run, while labor force participation is significant only in the short run. Inverse relationships are observed between these factors and youth unemployment. The CUSUM and CUSUMSQ tests confirm that the model is structurally stable within the 5% critical bounds, and the error correction term (ECM) indicates a slow adjustment process, with 33.82% of the previous year’s disequilibrium in youth unemployment being corrected in the current year.

Keywords: Youth Unemployment, Foreign Direct Investment, External Debt, Gross Domestic Product, ARDL Model