ECS3706
Assignment 2 Semester 2 2025
2 2025
Unique Number:
Due date: 18 September 2025
QUESTION 1
STEP 1: LITERATURE REVIEW AND DEVELOPMENT OF THEORETICAL MODEL
Unemployment is one of South Africa’s most persistent macroeconomic challenges,
exacerbated by slow GDP growth, limited foreign investment, and skills mismatch in the
labour market. Understanding the key drivers behind unemployment helps policymakers
make informed decisions. Economic theory suggests that growth, investment, and human
capital are critical in shaping employment outcomes. This step reviews recent literature
(within the past 5 years) and proposes a model to capture the relationships.
Recent Journal Articles
1. Khambule & Nomdo (2022) examined the relationship between government
spending and unemployment in South Africa. Their findings showed that increased
public spending on education positively affects long-term employability, but short-term
effects are minimal.
DISCLAIMER & TERMS OF USE
Educational Aid: These study notes are intended to be used as educational resources and should not be seen as a
replacement for individual research, critical analysis, or professional consultation. Students are encouraged to perform
their own research and seek advice from their instructors or academic advisors for specific assignment guidelines.
Personal Responsibility: While every effort has been made to ensure the accuracy and reliability of the information in
these study notes, the seller does not guarantee the completeness or correctness of all content. The buyer is
responsible for verifying the accuracy of the information and exercising their own judgment when applying it to their
assignments.
Academic Integrity: It is essential for students to maintain academic integrity and follow their institution's policies
regarding plagiarism, citation, and referencing. These study notes should be used as learning tools and sources of
inspiration. Any direct reproduction of the content without proper citation and acknowledgment may be considered
academic misconduct.
Limited Liability: The seller shall not be liable for any direct or indirect damages, losses, or consequences arising from
the use of these notes. This includes, but is not limited to, poor academic performance, penalties, or any other negative
consequences resulting from the application or misuse of the information provided.
, For additional support +27 81 278 3372
QUESTION 1
STEP 1: LITERATURE REVIEW AND DEVELOPMENT OF THEORETICAL
MODEL
Unemployment is one of South Africa’s most persistent macroeconomic challenges,
exacerbated by slow GDP growth, limited foreign investment, and skills mismatch in
the labour market. Understanding the key drivers behind unemployment helps
policymakers make informed decisions. Economic theory suggests that growth,
investment, and human capital are critical in shaping employment outcomes. This
step reviews recent literature (within the past 5 years) and proposes a model to
capture the relationships.
Recent Journal Articles
1. Khambule & Nomdo (2022) examined the relationship between government
spending and unemployment in South Africa. Their findings showed that
increased public spending on education positively affects long-term
employability, but short-term effects are minimal.
2. Adegbite & Ayadi (2021) found a statistically significant negative relationship
between FDI and unemployment in sub-Saharan African countries. The study
noted that stable investment climates attract FDI that creates jobs, particularly
in the industrial and services sectors.
3. Chinomona & Hlongwane (2023) used regression analysis to explore how
GDP growth impacts unemployment in BRICS countries. Their findings
confirm Okun’s Law, which states that unemployment falls as GDP increases,
but the relationship is weak in countries with structural labour market issues.
4. Ngwenya & Mokoena (2020) studied education funding and labour
absorption in South Africa. They concluded that while public education
spending is high, the quality and relevance of education for the labour market
are key missing links.
5. Mpofu & Mlambo (2023) assessed the role of government policy in mediating
the effects of FDI on employment in developing economies. Their study
, For additional support +27 81 278 3372
suggested that FDI’s job creation potential is mediated by local content
policies and infrastructure readiness.
1.3 Key Takeaways from the Literature
GDP growth is a critical but insufficient factor in reducing unemployment
without structural reforms.
FDI can reduce unemployment when policies support labour-intensive
investments.
Government expenditure on education has mixed effects depending on
efficiency and alignment with labour market needs.
Other relevant variables include labour market rigidity, inflation, industrial
productivity, youth population growth, and skills mismatch.
1.4 Theoretical Model
From the literature and macroeconomic theory (especially Okun’s Law and Solow
Growth Model), we propose the following linear regression model:
Where:
Unemployment = Unemployment rate (%)
GDP Growth = Annual real GDP growth (%)
FDI = Foreign direct investment inflows (% of GDP)
Education Expenditure = Government expenditure on education (% of GDP)
ϵt = Error term
Assignment 2 Semester 2 2025
2 2025
Unique Number:
Due date: 18 September 2025
QUESTION 1
STEP 1: LITERATURE REVIEW AND DEVELOPMENT OF THEORETICAL MODEL
Unemployment is one of South Africa’s most persistent macroeconomic challenges,
exacerbated by slow GDP growth, limited foreign investment, and skills mismatch in the
labour market. Understanding the key drivers behind unemployment helps policymakers
make informed decisions. Economic theory suggests that growth, investment, and human
capital are critical in shaping employment outcomes. This step reviews recent literature
(within the past 5 years) and proposes a model to capture the relationships.
Recent Journal Articles
1. Khambule & Nomdo (2022) examined the relationship between government
spending and unemployment in South Africa. Their findings showed that increased
public spending on education positively affects long-term employability, but short-term
effects are minimal.
DISCLAIMER & TERMS OF USE
Educational Aid: These study notes are intended to be used as educational resources and should not be seen as a
replacement for individual research, critical analysis, or professional consultation. Students are encouraged to perform
their own research and seek advice from their instructors or academic advisors for specific assignment guidelines.
Personal Responsibility: While every effort has been made to ensure the accuracy and reliability of the information in
these study notes, the seller does not guarantee the completeness or correctness of all content. The buyer is
responsible for verifying the accuracy of the information and exercising their own judgment when applying it to their
assignments.
Academic Integrity: It is essential for students to maintain academic integrity and follow their institution's policies
regarding plagiarism, citation, and referencing. These study notes should be used as learning tools and sources of
inspiration. Any direct reproduction of the content without proper citation and acknowledgment may be considered
academic misconduct.
Limited Liability: The seller shall not be liable for any direct or indirect damages, losses, or consequences arising from
the use of these notes. This includes, but is not limited to, poor academic performance, penalties, or any other negative
consequences resulting from the application or misuse of the information provided.
, For additional support +27 81 278 3372
QUESTION 1
STEP 1: LITERATURE REVIEW AND DEVELOPMENT OF THEORETICAL
MODEL
Unemployment is one of South Africa’s most persistent macroeconomic challenges,
exacerbated by slow GDP growth, limited foreign investment, and skills mismatch in
the labour market. Understanding the key drivers behind unemployment helps
policymakers make informed decisions. Economic theory suggests that growth,
investment, and human capital are critical in shaping employment outcomes. This
step reviews recent literature (within the past 5 years) and proposes a model to
capture the relationships.
Recent Journal Articles
1. Khambule & Nomdo (2022) examined the relationship between government
spending and unemployment in South Africa. Their findings showed that
increased public spending on education positively affects long-term
employability, but short-term effects are minimal.
2. Adegbite & Ayadi (2021) found a statistically significant negative relationship
between FDI and unemployment in sub-Saharan African countries. The study
noted that stable investment climates attract FDI that creates jobs, particularly
in the industrial and services sectors.
3. Chinomona & Hlongwane (2023) used regression analysis to explore how
GDP growth impacts unemployment in BRICS countries. Their findings
confirm Okun’s Law, which states that unemployment falls as GDP increases,
but the relationship is weak in countries with structural labour market issues.
4. Ngwenya & Mokoena (2020) studied education funding and labour
absorption in South Africa. They concluded that while public education
spending is high, the quality and relevance of education for the labour market
are key missing links.
5. Mpofu & Mlambo (2023) assessed the role of government policy in mediating
the effects of FDI on employment in developing economies. Their study
, For additional support +27 81 278 3372
suggested that FDI’s job creation potential is mediated by local content
policies and infrastructure readiness.
1.3 Key Takeaways from the Literature
GDP growth is a critical but insufficient factor in reducing unemployment
without structural reforms.
FDI can reduce unemployment when policies support labour-intensive
investments.
Government expenditure on education has mixed effects depending on
efficiency and alignment with labour market needs.
Other relevant variables include labour market rigidity, inflation, industrial
productivity, youth population growth, and skills mismatch.
1.4 Theoretical Model
From the literature and macroeconomic theory (especially Okun’s Law and Solow
Growth Model), we propose the following linear regression model:
Where:
Unemployment = Unemployment rate (%)
GDP Growth = Annual real GDP growth (%)
FDI = Foreign direct investment inflows (% of GDP)
Education Expenditure = Government expenditure on education (% of GDP)
ϵt = Error term
