Abstract

This study aims to investigate the determinants of unemployment rate in Jordan during the period (1992-2015). The Augmented Dickey- Fuller test (ADF) was utilized to examine the stationarity of the variables of this study. The results have shown that the variables are stationary at different orders, I(0), I(1), and I(2). The Granger causality test found that there is a unidirectional causal relationship running from private investment to unemployment rate.

Two tools of analysis were employed: impulse response function and variance decomposition through applying a vector autoregression (VAR) model. The final results have shown that private investment has a negative impact on unemployment rate in Jordan, which explains about 2.64% of the variations in the unemployment rate in the second period and (1.58%) in the fourth period. This percentage also tends to decline to a level at which the explanatory power of private investment for the forecast error in the unemployment rate can reach 1.34% in the ninth period.

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