Overview

Original Research

HOW TRADE OPENNESS SHAPES UNEMPLOYMENT IN DEVELOPING ECONOMIES: A DYNAMIC PANEL DATA APPROACH

TANGGUH PRATYSTO 1, MESI HERAWATI 2, and IQBAL BANYU SUNARYA 3.

Vol 20, No 07 ( 2025 )   |  DOI: 10.5281/zenodo.16410388   |   Author Affiliation: Department of Economics Development Studies, Faculty of Economics and Business, Universitas Diponegoro1;2;3.   |   Licensing: CC 4.0   |   Pg no: 131-141   |   Published on: 24-07-2025

Abstract

This study employs dynamic panel data modelling to analyse trade openness and unemployment in 54 upper-middle-income countries from 1991 to 2023. This study employs macroeconomic control variables, including inflation, FDI, and real GDP, to examine unemployment dynamics. The study's results demonstrate that trade openness, FDI, and real GDP can reduce unemployment both in the short term and the long term. While increasing inflation can lead to increased unemployment in the short and long term. This study then analyses the average annual unemployment convergence rate. This study's findings emphasise that the government must encourage trade liberalisation policies and maintain macroeconomic stability to reduce unemployment.

Keywords

Trade Openness; Unemployment; Dynamic Panel Data; System Gmm; Inflation; Foreign Direct Investment; Economic Growth.