Does financial and agriculture sector development reduce unemployment rates? Evidence from Southern African countries

Abstract

The paper examines empirically the impacts of agricultural sector value added and financial development on unemployment, using yearly data from 1995-2015. Eleven developing Southern African Development Community countries were selected for the study. The empirical analysis was carried out using second-generation econometric methods. The regression results revealed that both agricultural value added and financial development are important determinants of unemployment within the region. The results specifically show that agricultural value added is negatively associated with unemployment in both the short and long-run, although the long-run effect is many times bigger than the short-run impact. The results also show that in the long-run, both financial depth and financial efficiency are negatively associated with unemployment. Interactions between agricultural value added financial development and unemployment were further tested via panel bootstrap causality tests. The causality test results revealed the existence of significant one-way causality from agricultural value added to unemployment and from financial depth to unemployment for the region. It also showed that causality varies across individual countries within the region with different conditions, indicating the heterogeneous nature of the countries that make up the regional bloc.