Does Trade Openness and Human Capital abate Unemployment? Empirical Evidence from India

Abstract

This study comprehensively investigates the impact of trade openness and human capital on India’s unemployment rate using time-series data from 1990 to 2019. The ARDL bound testing approach was used to determine the long and short-run relationship among the variables. The empirical findings indicate that trade openness and human capital have a negative impact on the unemployment rate in both the long and short run, suggesting that trade openness and human capital have reduced the unemployment rate in India. These results have significant implications for policymakers in crafting policies that promote continuous trade openness and help reduce unemployment in India. To succeed, trade liberalisation must be integrated into a reasonable set of structural and macroeconomic policies, supplemented by complementary policies such as maintaining an adequate inflation rate and macroeconomic stability and nurturing human capital. The study recommends that India should prioritise improving and enhancing efficient schooling and training programs, with a particular focus on career skills for young people. Policymakers can use the study’s findings to guide policy decisions to reduce unemployment and promote trade openness. JEL Codes: E24, F14, F63, C32