Econometric Analysis to Examine the Relationship between Unemployment and Macroeconomics Aggregates. Evidence from Kosovo

Unemployment is considered one of the most challenging economic problems in Kosovo. In fact, the very high unemployment rate is also the primary economic problem of the country. The purpose of this study is to analyze the correlation and the impact of macroeconomic aggregates in Kosovo's unemployment. Specifically, this study utilized macroeconomic aggregates as follows: Gross Domestic Product, Foreign Direct Investment, Exports, and Inflation. To prove this relationship, based on the theoretical literature, the econometrical model was constructed with multiple regressions analysis based on the Ordinary Least Square (OLS) method, utilizing secondary data from World Bank Indicators for the time period of 2001 till 2018 The paper concludes that in Kosovo, for the time period under consideration (2001–2018), the link between unemployment and economic growth is significant and the results show that 1% growth of Gross Domestic Product will lower the unemployment rate by 1.7%. Also, the results of the regression model show that the relationship between Export and Unemployment rate is significant, namely the increase in Export by 1% will reduce the Unemployment rate to (1, 154) while the relation between Foreign Direct Investment and Unemployment rate results negative as growth for 1% of Foreign Direct Investment will increase the Unemployment rate to 1.25. Meanwhile, the results between unemployment and inflation showed an unsatisfactory and insignificant relationship between them.