Interaction Effect of Economic Globalization and Income per Capita on Unemployment

A Kuznets-like curve for unemployment suggests that unemployment initially rises with early economic development due to sectoral shifts but decreases as economies mature, diversify, and adapt. This explains how gross national income (GNI) per capita influences or mediates the effect of globalization on unemployment. This study investigates the impact of the interaction between GNI per capita and economic globalization on unemployment rates in 158 countries from 1991 to 2019 using the spatial Durbin model (SDM) and a weight matrix based on cultural, political, social, language, and historical backgrounds and trade pacts (CPSLHT) for better estimates. The results indicate that the direct and indirect effects of gross domestic product (GDP) on unemployment are negative and significant in the short and long term. Population growth positively and significantly impacts unemployment, while female labor force participation shows negative and significant indirect effects. The net migration effect is negative but insignificant in the overall model and becomes significant in the decomposed globalization models. The direct and indirect effects of inflation were consistently negative and significant. Trade openness exerts a significant indirect negative effect on unemployment, while the interaction between GNI per capita and economic globalization, especially through trade and foreign direct investment, also reduces unemployment. Persistent unemployment and spatial spillover effects highlight the importance of regional cooperation. Controlling population growth, enhancing GDP growth, permitting mild inflation, promoting female workforce participation, and adopting effective migration policies can reduce global unemployment.