TRADE BALANCE AND UNEMPLOYMENT IN EURO REGION: A VECTOR ERROR CORRECTION MODEL APPROACH

Discussing the various aspects of the growing unemployment rate, the debate of protectionism vs free trade, the rising call for "trade is bad", and "trade is eating jobs", we tried to finally establish a bivariate model linking trade balance and un-employment rate in the Euro Area by taking the quartile time-series data from 2008: Q1 – 2021: Q3. The paper studies the impact of the trade balance on the un-employment rate in the short as well as long-run using the VEC model. The estima-tion of Johansen's cointegration test resulted that the model is cointegrated in the long and with a 1 percent rise in the trade balance, the unemployment is reduced by 2.52 percent with the statistical significance of 1 percent. However, the Wald test rejected the presence of any short-run causality between the considered variables.

Keywords:

Trade Balance, Unemployment, Euro Area Cointegration, and VECM,

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