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Examining the Impact of International
Trade Towards Unemployment Rate in
the Philippines: A Time Series Analysis
A Thesis
Submitted to
Faculty of Arts and Letters
University of Santo Tomas
In Partial Fulfillment
Of the requirements for the degree,
Bachelor of Arts in Economics
By
Beyonce A. Cantuba
May 2024
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ABSTRACT
This This paper investigates the impact between international trade
wherein imports, exports, and foreign direct investment are the key measures of
international trade and the unemployment rate in the Philippines. It is a time series
data analysis from 1991 to 2021 with a total of 31 observations to explore how
changes in international trade activities affect the level of unemployment in the
country. By explaining the complex dynamics that explain the relationship
between labor market dynamics and foreign trade operations within the
framework of the Philippine economy, the research seeks to add to the pool of
economic literature.
The Ordinary Least Square (OLS) regression is employed in the study of
different statistical methods and appropriate econometric models to investigate
any relationships and significance between the number of imports and exports, the
inflow of foreign direct investment, and the unemployment rate. Appropriate
econometric models are incorporated into the process to facilitate the relationships
between variables and the evaluation of the potential length and direction of these
variables' influence on unemployment. The Ordinary Least Square (OLS)
regression is employed in the study. The results indicate that Imports, Exports,
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and FDI have a positive and negative impact on the Unemployment Rate. In
addition, they all have a significant relationship with HDI. While using the
Correlation Matrix, Imports, Exports, and FDI shows a significant relationship
with the Unemployment Rate.
Keywords: International trade, Imports, Exports, FDI, Unemployment rate
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TABLE OF CONTENTS
Approval Sheet
i
Declaration of Originality
ii
Certificate of Turnitin
iii
ABSTRACT
iv
TABLE OF CONTENTS
vi
List of Tables
vii
List of Figures
vii
Chapter 1: INTRODUCTION
1
1.1 Background of the Study
1
1.2 Statement of the Problem
3
1.3 Formulation of Hypotheses
4
1.4 Scope of Limitation
5
1.5 Significance of the Study
5
1.6 Definition of Terms
8
Chapter 2: REVIEW OF RELATED LITERATURE
9
Overview
9
FDI on Unemployment
9
Imports, Exports and Trade on Unemployment
12
2.2 Synthesis and Gaps
16
2.3 Theoretical Framework
18
2.4 Conceptual Framework
19
Chapter 3: METHODOLOGY
20
3.1 Research Design
20
3.2 Data Collection
20
3.3 Econometric Model
21
3.4 Variable Descriptions
22
3.5 Estimation Strategy
23
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3.6 Data Analysis and Statistical Treatment
24
Chapter 4: RESULTS AND DISCUSSION
26
4.1 Summary Statistics
26
4.2 Regression Result
27
4.3 Diagnostic Test
28
4.3.1 Unit Root Test
28
4.3.2 Multicollinearity
29
4.3.3 Heteroscedasticity
29
4.3.4 Autocorrelation
30
4.3.5 Normality of Residuals
30
Chapter 5: SUMMARY, CONCLUSION AND RECOMMENDATION
31
Summary and Conclusion
31
Recommendation
35
Bibliography
37
Appendices
40
List of Tables
Table 1: List of Variable Descriptions
22
Table 2: Summary Statistics
26
Table 3: Regression Result
27
List of Figures
Figure 1: Conceptual Framework
19
Figure 2: Econometric Model
21
Figure 3: Unit Root Tests
40
Figure 3.1 Unemployment
40
Figure 3.2 Imports
41
Figure 3.3 Exports
41
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Figure 3.4 Foreign Direct Investment
41
Figure 4: Multicollinearity
42
Figure 5: Heteroscedasticity
42
Figure 6: Autocorrelation
42
Figure 7: Normality of Residuals
43
Figure 8: Data Set
44
Figure 9: Turnitin Result
45
Curriculum Vitae
46
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Chapter 1: INTRODUCTION
1.1 Background of the Study
International trade, involving both imports and exports of goods and
services across borders, is a key driver of economic growth and development. It
allows countries to specialize in the production of goods and services in which
they have a comparative advantage and enables access to a wider range of goods
and services at lower prices. As a result, international trade has become an
integral part of the global economy, with countries engaging in trade to expand
their markets, promote economic growth, and improve the standards of living for
their citizens.
In recent decades, the Philippines has been actively participating in
international trade, with a growing volume of imports, exports, and foreign direct
investment (FDI) flows. The country has pursued trade liberalization policies and
actively engaged in regional and global trade agreements, such as the ASEAN
Free Trade Area (AFTA) and the World Trade Organization (WTO). International
trade has played a significant role in the economic growth and development of the
Philippines, contributing to its export-oriented manufacturing sector, attracting
foreign investment, and generating employment opportunities.
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Several studies have examined the relationship between international
trade and unemployment in various countries and contexts, providing mixed
findings. Some studies have found that increased imports or decreased exports can
lead to higher unemployment, as domestic industries may face competition from
cheaper foreign goods or experience reduced demand for their products in
international markets (Dutt et al., 2018). Other studies have argued that
international trade can have positive effects on employment, such as through
increased FDI inflows that can stimulate job creation in the host country (Rhee,
2011).
However, the impact of international trade on labor market
outcomes, particularly on the unemployment rate, has been a topic of debate and
empirical investigation in the literature. While proponents of international trade
argue that it leads to a high employment rate and economic growth, critics raise
concerns about potential negative effects, such as wage stagnation and
unemployment. The relationship between international trade and unemployment
is complex and multifaceted, and its implications for a developing country like the
Philippines warrant further investigation.
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This paper tackles the impact of the direct impacts of imports,
exports, and foreign direct investment towards employment patterns and how it
differs from the years 1991-2021. By navigating the complexities of international
trade towards the unemployment rate, in the context of the Philippines, there is
limited empirical research on the relationship between international trade and
unemployment. The existing literature focuses mainly on the overall impact of
trade on economic growth and development, with limited analysis on the labor
market outcomes. Therefore, this study aims to fill this research gap by
conducting a causal analysis to investigate the relationship between international
trade (Imports, Exports, and FDI) and the unemployment rate in the Philippines.
1.2 Statement of the Problem
This study aims to examine the impact of International Trade towards
Unemployment Rate in the Philippines, mainly focusing on the relationship
between Imports, Exports and Foreign Direct Investments, and their effect on
Unemployment Rate. The study aims to provide answers to the following
questions:
1. What are the changes in the Unemployment Rate, Imports, Exports, and
Foreign Direct Investments that occurred from 1991 to 2021 in the
Philippines?
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2. To what extent do imports influence the unemployment rate?
3. To what extent do exports influence the unemployment rate?
4. To what extent do foreign direct investments influence the unemployment
rate?
1.3 Formulation of Hypotheses
This study considers the following hypothesis:
Hypothesis 1
H0: There is no significant relationship between Imports and Unemployment rate.
Hypothesis 2
H0: There is no significant relationship between Exports and Unemployment rate.
Hypothesis 3
H0: There is no significant relationship between Foreign Direct Investments and
Unemployment rate.
Hypothesis 4
H0: There is no significant relationship between International Trade and
Unemployment rate.
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1.4 Scope and limitation
This study conducted an analysis to investigate the relationship
between international trade and the unemployment rate in the Philippines. A total
of 30 observations were used to assess the impact of international trade on
independent variables from 1991-2021. Secondary data from statistical websites,
such as the World Bank, were used due to limited access to primary data and time
constraints. The independent variables in the study focused on three International
trade indicators, which are Imports, Exports, and Foreign Direct Investments. The
study also focused on annual data, as some indicators only had annual updates
available during the 30-year period. Additionally, the study used aggregate
national-level data instead of regional-level data due to limited availability, thus,
regional analysis was not conducted in this study.
1.5 Significance of the Study
Local Communities/Barangays: This study equips communities to be
aware of the potential disruptions caused by international trade tensions or global
economic downturns, can prepare contingency plans. This preparedness can
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involve creating safety nets for affected workers, supporting local businesses
during challenging times, and seeking out alternative trading partners. By
fostering understanding, collaboration, and strategic planning, communities can
work towards minimizing possible negative impacts and maximizing the benefits
of international trade on local employment. It will also help the communities to
understand the relationship between international trade and unemployment and
how it contributes to the overall sustainable development of communities.
Balanced trade practices can lead to steady economic growth and improve living
standards, enhancing the well-being of community members.
Policies: The findings of this study can have important policy implications
for policymakers in the Philippines and other countries with similar economic
conditions. Understanding the relationship between international trade and
unemployment can provide insights into the potential impacts of trade policies,
such as trade liberalization or protectionism, on the labor market. The study's
findings can inform policymakers in making evidence-based decisions on trade
policies that aim to promote economic growth and employment opportunities.
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Economic Literature: This study can contribute to the existing literature
on the relationship between international trade and unemployment, particularly in
the context of the Philippines. By employing econometric methods and analyzing
recent data, this study can add to the body of knowledge and provide empirical
evidence on the relationship between international trade and unemployment in the
Philippines, which can contribute to the academic literature in the field of
economics.
Businesses: The findings of this study can also have implications for
businesses and industries involved in international trade, such as importers,
exporters, and foreign investors. Understanding the relationship between
international trade and unemployment can provide insights into potential labor
market impacts, labor supply, demand dynamics, and business strategies related to
international trade activities. Businesses and industries involved in international
trade can benefit from the findings of this study in their decision-making
processes and strategic planning.
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1.6 Definition of Terms
Imports - According to the World Bank, Imports of goods and services
represent the value of all goods and other market services received from
the rest of the world.
Exports - According to the World Bank, Exports of goods and services
represent the value of all goods and other market services provided to the
rest of the world.
Foreign Direct Investment - According to the World Bank, Foreign
Direct Investment is a category of cross-border investment associated with
a resident in one economy having control or a significant degree of
influence on the management of an enterprise that is resident in another
economy direct investment equity flows
using the percentage of Gross Domestic Product (GDP)
Unemployment Rate According to the World Bank, Unemployment
refers to the share of the labor force that is without work but available for
and seeking employment.
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Chapter 2: REVIEW OF RELATED LITERATURE
Overview
The relationship between international trade and unemployment has been
a topic of interest in the field of economics. The theoretical literature on trade and
unemployment is complex and presents different perspectives. On one hand, trade
can lead to more job opportunities through increased demand for exports,
expansion of industries, and inflow of foreign investment. On the other hand,
trade can also result in job displacement through import competition, industry
restructuring, and technological change.
FDI on Unemployment
The relationship between foreign direct investment (FDI) and
unemployment is one of the most debated topics in economic literature since there
is no agreement on it, and it varies by country. There are a number of studies that
prove there is an insignificant relationship between FDI and unemployment. A
study by EconStor (1997) explores the job creation versus job displacement
effects of FDI. The type of FDI can influence the outcome. For instance, FDI
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focused on efficiency might lead to some job losses in the short term, but also
create opportunities for exports and new product lines in the long term.
A study conducted by Nelson (2018) concludes that there is a weak and
negative correlation between foreign direct investment and the unemployment
rate in Nigeria, There is a negative relationship between FDI and the
unemployment rate in Nigeria. An increase in FDI leads to a decrease in the
unemployment rate, indicating that FDI has the potential to impact employment
levels positively and the coefficient for FDI was found to be -3.15, meaning that a
one percentage change in FDI results in a 3.15 percent change in the
unemployment rate in the negative direction in Nigeria. However, this
relationship was not statistically significant at the 5% level. It implies that if
foreign direct investment rises, unemployment will also fall. This empirical result
was in line with what economic theory would have predicted. In this study, the
researchers employed a variety of tests to analyze the relationship between the
variables. Furthermore, Causal Analysis was conducted to determine the
direction of the relationship between the variables, whether positive or negative.
These tests and analyses were essential in evaluating the impact of FDI on
unemployment in Nigeria and deriving meaningful insights from the study.
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According to the Neo-liberal school, a significant portion of the required
economic fortune can be attained by foreign direct investment. It could offer vital
assistance to developing nations in updating their industrial systems. The outcome
indicates that, in order to lower the unemployment rate significantly, policy and
strategy should concentrate on ways to increase foreign direct and indirect
investment in the nation.
However, there are studies that prove there is a positive and significant
relationship. A study by Taylor & Francis (2020) explores the impact of FDI on
youth unemployment in the Southern African Development Community (SADC)
region. The study suggests that FDI can lead to increased technical efficiency and
potentially more jobs over time through technology transfer. Osinusi (2020)
analyzes the relationship of Foreign Direct Investment, Economic Growth and
Unemployment in Nigeria, the study finds that FDI has a negative coefficient (-
0.2997), indicating that a 1% increase in FDI leads to a 0.29% decrease in the
unemployment rate. FDI is found to have a significant impact on the
unemployment rate in Nigeria during the period under study. The results suggest
that as FDI increase, there is a corresponding decrease in the unemployment rate
in Nigeria.
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Alkofahi (2020) concluded that one of the various ways that this goal
might be attained is by enticing more foreign direct investment. FDI is thought to
increase employment prospects, which could lower the unemployment rate in the
host nations. Another study conducted by WIDIA et al. (2019) examined the
possibility that FDI could lower unemployment in the region using cross-sectional
data for ASEAN member nations. The study used annual data for the Philippines,
Indonesia, Thailand, Singapore, and Malaysia from 1975 to 2016.
Imports, Exports, and Trade on Unemployment.
In a study conducted by Cheng J et al. (2019) The estimation findings
indicate that imports reduce unemployment rates in subsamples made up of
developing countries, countries with high industrial ratios, and countries with low
service ratios. On the other hand, export has positive and significant effects on the
unemployment rate in subsamples made up of wealthy countries, countries with a
low industrial ratio, and countries with a high service ratio. As a result, this study
claims that each country's level of economic growth and industrial structure
determines how import and export activity affects unemployment.
Likewise, Leightner J. (2021) concluded that Trade liberalization would
be expected to reduce unemployment, according to certain Ricardian models. On
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the other hand, if wage rigidities exist, the Heckscher-Ohlin model (Stolper
Samuelson Theorem) predicts that trade liberalization will lead to a decline in
wages for labor-scarce nations, increasing unemployment. The theoretical model
used has an impact on the empirical findings. The study generates non-model-
dependent estimates of the change in unemployment resulting from a change in
imports. The estimates generated are complete derivatives, which include all
possible correlations between imports and unemployment. The author finds that
unemployment increases with increased imports for Austria, Greece, Japan,
Portugal, South Korea, Slovenia, and Sweden but that unemployment decreases
with increased imports for Australia, Belgium, Canada, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Israel, Italy,
Latvia, the Netherlands, New Zealand, Norway, Poland, Slovakia, Spain, and the
UK.
Empirical studies on the relationship between international trade and
unemployment have produced mixed findings. Some studies find a positive
correlation between trade and unemployment, suggesting that increased imports
or reduced exports can lead to higher unemployment rates. Nguyen Van Bon et al.
(2017), Del Carpio et al. (2018), and Bhattarai et al. (2018) concluded that exports
positively influenced employment, while imports had a negative effect on
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employment. The findings suggest that international trade can contribute to job
creation through export expansion but may also result in job displacement through
import competition. Similarly, studies by Vu et al. (2019) find that import
competition led to job losses and unemployment in local labor markets in
Vietnam.
several mechanisms. These are increased demand for exported goods stimulates
production, potentially requiring more workers. Export-oriented industries might
experience productivity gains to remain competitive, leading to job creation in
related sectors. And, countries specializing in sectors with a comparative
advantage can see overall economic growth, potentially creating jobs across
various industries. Wood (1994) examines the connection between exports and
employment in light of the Heckscher-Ohlin theorem, a trade theory. The study
finds evidence that export growth can be associated with increased employment in
some cases, particularly in developing countries.
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On the other hand, some studies find a negative correlation between trade
and unemployment, suggesting that increased exports or FDI can lead to lower
unemployment rates. For example, studies by Simona Mutu et al. (2020) find that
higher export levels are associated with lower unemployment rates, particularly in
countries with higher export intensity and lower labor market frictions. Similarly,
studies by Alaya Mekki and Rima Lamine (2018) stated that findings indicated
that FDI inflows have a negative and significant impact on unemployment,
suggesting that higher FDI inflows can lead to lower unemployment rates in
developing countries.
There are also studies that find mixed or inconclusive results, suggesting
that the relationship between trade and unemployment is complex and depends on
various factors such as country-specific characteristics, industry composition, and
labor market institutions. Susilowati et al. (2020) find mixed results on the impact
of trade on unemployment, depending on the level of development and industry
composition. OECD (2017) acknowledges the complexity of the trade-
employment relationship. While exports can create jobs, they might also displace
workers in some sectors that struggle to compete internationally.
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2.2 Synthesis and Gaps
In the context of the Philippines, there is limited empirical research on the
relationship between international trade and unemployment. The existing
literature focuses mainly on the overall impact of trade on economic growth and
development, with limited analysis on the labor market outcomes. Therefore, this
study aims to fill this research gap by conducting an analysis to investigate the
relationship between international trade (imports, exports, and FDI) and the
unemployment rate in the Philippines. The research studies on the relationship
between international trade (including FDI, imports, and exports) and
unemployment from 1991 to 2021 provide valuable insights into the topic. These
studies highlight that international trade can have an impact on unemployment
rates, although the direction and magnitude of the relationship may vary
depending on various factors.
The literature suggests that higher levels of international trade, including
exports, can generally be associated with lower unemployment rates. This is
attributed to increased demand for labor in export-oriented industries, leading to
higher labor demand and potentially lower unemployment. Studies have also
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found that exporting firms tend to have higher labor demand and lower
unemployment rates compared to non-exporting firms, indicating a positive
relationship between exports and employment.
Moreover, the impact of international trade on unemployment is
influenced by factors such as labor market institutions, market frictions, and
country-specific characteristics. For instance, countries with higher levels of labor
market flexibility and lower labor market frictions may experience a stronger
positive impact of exports on employment. Additionally, the relationship between
FDI and unemployment can be complex, with studies suggesting that it can vary
depending on the type and nature of FDI, as well as the domestic labor market
conditions.
However, it is important to note that the relationship between international
trade and unemployment is not always straightforward, and there may be other
factors at play. For example, trade protectionism measures, changes in global
economic conditions, and technological advancements can also influence
employment dynamics. Furthermore, the COVID-19 pandemic has introduced
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unprecedented disruptions to global trade and labor markets, which may have
altered the relationship between international trade and unemployment during the
period of 2017-2021.
2.3 Theoretical Framework
(1) Heckscher-Ohlin Theory suggests a link between a country's resources
and its trade patterns, potentially impacting unemployment.
Developing countries with abundant labor might see a decrease in
unemployment by exporting labor-intensive goods (e.g., textiles) and
importing capital-intensive goods (e.g., machinery). This utilizes their
abundant labor force in the export sector, creating jobs. Moreover,
developed countries with abundant capital might experience an
increase in unemployment within specific sectors (e.g., manufacturing)
if they import cheaper labor-intensive goods and export capital-
intensive goods. This competition can lead to job losses in industries
competing with these imports. While the theory offers a simplified
model, it highlights the importance of a country's resource
endowments in shaping its trade advantage and the potential
consequences for its labor market.
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2.4 Conceptual Framework
Figure 1. Examining the Impact of International Trade towards Unemployment Rate in
the Philippines: A Time-Series Analysis
This model shows that the independent variables, namely Imports, Exports, and
FDI, the proxy variables of International trade, have an impact on the dependent
variable, which is the Unemployment Rate.
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Chapter 3: METHODOLOGY
3.1 Research Design
The primary objective of this paper is to assess the impact between
International Trade and Unemployment in the Philippines using a causal analysis.
This research approach establishes a cause-and-effect relationship between two or
more variables without manipulating the independent variables, allowing for an
objective analysis of the significant effect of international trade on the
unemployment rate in the Philippines. Secondary data from the World Bank
database, including percentage of Exports in GDP, percentage of Imports in GDP,
and percentage of Foreign Direct Investment in GDP as independent variables,
and the unemployment rate in the Philippines as the dependent variable, were
utilized for evaluation and conclusion. The study
3.2 Data Collection
The statistical data utilized to quantify the variables in this study, which
focuses on the Philippine context, with data collected from 1991 to 2021,
resulting in a total of 31 observations, were obtained from the World Bank's
available statistics. Exports, Imports, and FDI serve as key measures of
international trade in this study, A summary of the descriptive statistics for the
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data employed in modeling, the relations between international trade and
unemployment in the Philippines, is presented in the table.
3.3 Econometric Model
Figure 2: Econometric Model
Model Specification
ln UR = β0 + β1Imp + β2Exp + β3FDI+ u
WHERE:
UR = Unemployment Rate
Imp = Imports
Exp = Exports
FDI = Foreign Direct Investment
U = Error term
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3.4 Variable Description
Table 1. List of Variable Descriptions
Variable
Definition
Measurement
Unemployment
Rate
According to the World Bank,
Unemployment refers to the share of
the labor force that is without work
but available for and seeking
employment.
Rate of Unemployment
in the Philippines
Imports
According to the World Bank,
Imports of goods and services
represent the value of all goods and
other market services received from
the rest of the world.
Percentage of Gross
Domestic Product
Exports
According to the World Bank,
Exports of goods and services
represent the value of all goods and
other market services provided to the
rest of the world.
Percentage of Gross
Domestic Product
Foreign Direct
Investment
According to the World Bank,
Foreign Direct Investment is a
category of cross-border investment
associated with a resident in one
economy having control or a
significant degree of influence on the
management of an enterprise that is
resident in another economy.
Percentage of Gross
Domestic Product
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3.5 Estimation Strategy
The researcher conducted Ordinary Least Square (OLS) regression to
examine the relationship of the independent variables and dependent variable.
However OLS can only establish correlation, not causation, with this, Granger
Causality test was used to examine the causal relationship of the variables.
The model's goodness of fit was assessed using the coefficient of
determination (R-squared), while individual hypothesis testing of variable
significance was performed using P-values. Overall model significance was
evaluated using P-values. As this study relied on secondary data, there may be
issues that violate assumptions in regression analysis, potentially resulting in
unreliable conclusions. To address this, the researchers employed various tests for
diagnostics, including Unit Root Tests for stationarity, Variance Inflation Factor
for testing multicollinearity, Breusch Pagan-Godfrey for testing
heteroscedasticity, Durbin-Watson test for testing autocorrelation, and Jarque-
Bera test for testing normality.
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3.6 Data Analysis and Statistical Treatment
The data analysis approach was employed using Gretl software to analyze
the relationship between the variables and test the hypotheses formulated in the
study. Microsoft Excel was utilized to compile and organize the collected data.
By adhering to the assumptions of the Ordinary Least Square model, a
number of statistical tests were carried out to ensure the accuracy and reliability
of the results:
Augmented Dickey-Fuller Test (Unit Root Tests)- Before diving into
the relationship between variables, it's crucial to check for stationarity. It
is a common econometric tool that is used in identifying whether a time
series is stationary or non-stationary. This means the data shouldn't exhibit
trends or seasonal fluctuations over time.
Variance Inflation Factor or VIF (Multicollinearity) It is a tool that
helps detect the severity of multicollinearity. By calculating the VIF for
each independent variable, it can identify which ones are potentially
problematic due to multicollinearity. A rule of thumb suggests that VIF
values above 5 or 10 might indicate a multicollinearity issue.
Breusch Pagan-Godfrey (Heteroscedasticity) This test is a significant
tool in regression analysis to identify heteroskedasticity, which mean
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unequal variance of the error terms in the model. The presence of
heteroscedasticity may require the use of robust standard errors or other
techniques to correct the issue and ensure the accuracy of the estimated
coefficients. This test determines the reliability of the OLS regression
results.
Durbin-Watson Test (Autocorrelation) It is a test used to detect the
presence of autocorrelation, which is the correlation between errors or
residuals in a time series or regression model. Its statistic ranges from 0 to
4, with values close to 2 indicating no autocorrelation, values below 2
indicating positive autocorrelation, and values above 2 indicating negative
autocorrelation
Jarque-Bera test (Normality of Residuals) - It is a goodness-of-fit test
used to assess if the residuals of a regression model are normally
distributed. The Jarque-Bera test produces a test statistic and a p-value
that can be used to assess the normality of the residuals in a regression
model. A higher p-value (typically above a significance level of 0.05)
indicates that the residuals are normally distributed, while a lower p-value
suggests departures from normality. If the residuals are not normally
distributed, it may affect the validity of the statistical inferences and may
require additional considerations in the interpretation of the results.
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Chapter 4: RESULTS AND DISCUSSION
4.1 Summary Statistics
Table 2: Summary Statistics
Variables
Mean
Median
Standard
Deviation
Minimu
m
Maximum
Unemploy
ment Rate
3.411
3.610
0.5041
2.240
4.050
Imports
31.72
31.93
9.149
15.82
45.30
Exports
28.24
27.35
8.711
13.87
43.34
FDI
2.595
1.487
3.061
0.009000
10.52
This table provides an overview of the summary statistics for the dataset
from 1991-2021. The average rate of unemployment was 3.411%, given that the
standard deviation for unemployment rate is 3.610, implying minimal fluctuations
and suggests a relatively stable labor market considering the minimum of 2.240 to
a maximum of 4.050. On the other hand, the table shows 31.72% is the average
import level during the observed period in the Philippines with a minimum of
15.82% and a maximum of 45.30%. While, Exports has the average level of
28.24% lower than imports, with a minimum of 13.87% and a maximum of
43.34% which implies Philippines rely more on Imports than Exports. Lastly, the
results indicates that foreign direct investment has the average level of 2.595%
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with a minimum of 0.009000 and a maximum of 10.52%, higher standard
deviation than mean indicates significant fluctuation in FDI inflows.
4.2 Regression Result
Time-series length = 10
Dependent variable: Unemployment Rate
Table 3 : Regression Result
Observation 31 (1991-2021)
coefficient
p-value
Imports
-0.0478737
0.0015
Exports
0.0435126
0.0020
FDI
-0.105410
2.01e-07
R-Square
0.881706
F-test
1.23e-12
Figure 1 shows the result of the Ordinary Least Squares (OLS) regression
analysis. The R-square of the analysis is 0.881706, meaning 88% of the
independent variables explain the variation of the dependent variable. The P-value
(f) is 1 meaning the model would fail to reject the null hypothesis and conclude
that there is not enough evidence to support a significant effect between the
variables. Based on the coefficient of the variables, Exports has a positive impact
on the Unemployment Rate. While, Imports and FDI has a negative Impact on the
Unemployment Rate.
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The independent variables, Imports, Exports and FDI shows a p-value of
less than 0.05, which means all variables are statistically significant with the
dependent variable and does reject the null hypothesis.
The results of the analysis suggest a complex interplay between trade and
investment on unemployment in the Philippines. A one unit increase in imports is
associated with a decrease in the unemployment rate by 0.0479%, suggesting that
imports might create job opportunities. On the other hand, a one unit increase in
exports leads to a slight increase in unemployment (0.0435%). Foreign direct
investment (FDI) appears to have the strongest negative association with
unemployment. Every one unit increase in FDI is linked to a decrease in the
unemployment rate by 0.1054%, suggesting that FDI lowers the unemployment
rate.
4.3 Diagnostic Test
4.3.1 Unit Root Test
The Augmented Dickey-Fuller Test examines the stationarity in the data.
A negative value is good in this context, as it suggests the null hypothesis of a
unit root (non-stationarity) can be rejected, in addition, if the p-value is much
lower than the test statistic, this rejects the null hypothesis. The lower the value,
the stronger the evidence against a unit root. Since the test results shows that
imports with -1.35705 and exports with -1.96537 have negative critical values at
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all significance levels and FDI with 1.79381 and a p-value of 0.9998, which is
lower than the critical value, suggests stronger evidence against the null
hypothesis. This means that unemployment rate, imports, exports and FDI is
likely stationary.
4.3.2 Multicollinearity
The Variance Inflation Factor (VIF) detects multicollinearity. By
calculating the VIF for each independent variable, it suggests that VIF values
above 10 might indicate a multicollinearity issue. The results shows that Imports
(6.437) Exports (7.068) and FDI (2.112) are less than 10, which states that there is
no multicollinearity issue in the regression results.
4.3.3 Heteroscedasticity
The Breusch Pagan-Godfrey determines the reliability of the OLS
regression results by checking if there are unequal variance of the error terms in
the model. The result shows that the model has a p-value of 0.16. This suggests
that there is not enough evidence to reject the null hypothesis of no
heteroscedasticity. This means that the regression model does not exhibit
significant heteroscedasticity, and the assumption of constant variance of
residuals is likely met.
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4.3.4 Autocorrelation
The Durbin-Watson Test is used to detect the presence of autocorrelation,
which is the correlation between errors or residuals in a time series or regression
model. A value close to 2 (typically between 1.5 and 2.5) suggests no significant
autocorrelation. In the regression analaysis, the result is 1.92444 which suggests
that there is no autocorrelation in the analysis.
4.3.5 Normality of Residuals
The Jarque-Bera test produces a test statistic and a p-value that can be used
to assess the normality of the residuals in a regression model. A higher p-value
(typically above a significance level of 0.05) indicates that the residuals are
normally distributed, while a lower p-value suggests departures from normality.
The result shows the p-
to conclude that the residuals are not normally distributed and therefore fails to
reject the null hypothesis of normality.
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Chapter 5: SUMMARY, CONCLUSION AND
RECOMMENDATION
Summary & Conclusion
The study tackles the impact of international trade on the
unemployment rate in the Philippines by providing context on the existing
literature and research gaps in this area. It acknowledged the complexity of the
relationship between international trade and unemployment and the mixed
findings from previous studies. This background information set the stage for the
research by highlighting the importance of investigating how trade influences
labor market outcomes in the Philippines.
The problem statement emphasized the need to understand the relationship
between trade and unemployment, recognizing the potential implications for
economic growth, job creation, and income distribution. By identifying this gap in
the literature and framing it as a research problem, the study aimed to address a
significant issue in the field of economics and policy-making.
The hypotheses formulated in the study provided a clear direction for the
research by outlining specific relationships to be tested and analyzed. These
hypotheses served as guiding principles for the empirical analysis, helping to
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focus the investigation on key variables such as imports, exports, and foreign
direct investments in relation to the unemployment rate. By formulating
hypotheses, the study established a framework for evaluating the impact of
international trade on unemployment in a structured and systematic manner.
The scope and limitations of the study outlined the boundaries within
which the research would be conducted. This included specifying the time period
(1991-2021), the focus on specific variables (imports, exports, FDI), and the use
of secondary data sources due to constraints on regional data availability. By
defining the scope and limitations, the study clarified the extent to which
conclusions could be drawn and provided transparency on the constraints of the
research.
The significance of the research was emphasized in highlighting the
importance of the study's findings for informing policy decisions. By addressing
the relationship between international trade and unemployment in the Philippines,
the research aimed to contribute valuable insights that could guide policymakers
in developing strategies to promote economic growth, job creation, and
sustainable development. The significance underscored the potential impact of the
study on shaping trade policies and enhancing the well-being of communities
through informed decision-making.
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The study provided a comprehensive overview of previous studies that
explored the relationship between international trade, unemployment, and how
they interact with each other. By synthesizing existing research, the study aimed
to build upon the knowledge already available in the field and identify areas
where further investigation was needed.
The synthesis of existing research involved analyzing and summarizing
the key findings and methodologies of previous studies on international trade and
unemployment. By doing so, the study was able to identify gaps in the literature,
particularly noting the lack of focus on labor market outcomes in the specific
context of the Philippines. This gap highlighted the need for the current study to
delve deeper into how international trade influences unemployment rates in the
Philippines, providing a more localized and nuanced perspective on the issue.
The theoretical and conceptual frameworks established in Chapter 2 laid a
solid foundation for the methodology and analysis that followed in the study.
These frameworks helped to frame the research questions, guide the selection of
variables, and provide a theoretical basis for understanding the mechanisms
through which international trade may impact unemployment. By grounding the
study in established theories and concepts from the literature, the research was
able to build upon existing knowledge and contribute to the theoretical
understanding of the relationship between trade and unemployment.
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The results and discussion presented a detailed analysis of the data
collected and the statistical methods employed to evaluate the relationship
between international trade and unemployment in the Philippines.
Diagnostic tests such as heteroskedasticity, normality of residuals, and
multicollinearity were employed to ensure the robustness and reliability of the
analysis. These tests helped to check for potential issues in the regression mode.
By conducting diagnostic tests, the study was able to validate the statistical
analysis and ensure that the results were sound and trustworthy.
The results of the diagnostic tests indicated that the regression model was
robust and suitable for analyzing the impact of imports, exports, and foreign direct
investments on unemployment. Heteroskedasticity tests showed that the variance
of the residuals was constant, indicating that the assumptions of the regression
model were met. Normality tests confirmed that the residuals were normally
distributed, supporting the validity of the statistical analysis. Multicollinearity
tests suggested that there were no significant correlations between the
independent variables, ensuring the independence of the factors under
investigation.
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In terms of the regression results, the analysis revealed significant
relationships between international trade indicators and the unemployment rate in
the Philippines. Imports, exports, and foreign direct investments were found to
have a statistically significant impact on unemployment, with varying degrees of
influence. By using regression model, the study was able to quantify the effects of
imports, exports, and foreign direct investments on unemployment, providing a
statistical basis for understanding the relationship between these variables.
Recommendation
To Policymakers, Develop and put into action labor market policies that
specifically address the issues associated with unemployment. This can involve
actions like supporting the adaptability of the labor market, developing
recruitment systems, offering unemployment insurance, and promoting small
enterprises and businesses.
Create an environment that is conducive to investment: By implementing
investment-friendly regulations, assuring the ease of doing business, and
providing incentives for investors, policymakers should place a high priority on
recruiting and facilitating foreign direct investment (FDI). FDI inflows can
promote economic expansion, generate employment opportunities, and help
decrease unemployment rates.
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To Future Researchers, conduct a thorough study: To demonstrate
causation and examine the underlying processes by which international trade
factors affect the unemployment rate, researchers should move beyond
correlational analysis and utilize advanced econometric tools. Panel data analysis,
instrumental variable methods, and time-series modeling are a few examples of
this.
Conducting a sectoral analysis: To understand how various industries have
been affected, look at how global trade has an influence on unemployment at the
sectoral level. Analyzing certain industries can assist and finding policy measures
that are suited to the demands of various industries and offer data about the
dynamics of the labor market.
Examine regional variations: Research regional differences within the
Philippines to learn how different regions may have different effects of imports,
exports, and FDI on unemployment. This can aid in identifying particular
possibilities and problems for each region and serve to direct regional
development initiatives.
Policy evaluation: Determine how well current trade and labor market
policies are working to combat unemployment. Evaluate the results of policy
interventions and offer evidence-based suggestions for policy enhancements and
modifications.
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Noble, B. (n.d.). Intra-Industry Trade: Cooperation and Conflict in the Global
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APPENDICES
Table 1: List of Variable Descriptions
Table 2: Summary Statistics
Table 3: Regression Result
Figure 3: Unit Root Tests
Figure 3.1 Unemployment
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Figure 3.2 Imports
Figure 3.3 Exports
Figure 3.4 Foreign Direct Investment
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Figure 4: Multicollinearity
Figure 5: Heteroskedasticity
Figure 6: Autocorrelation
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Figure 7: Normality of Residuals
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Figure 8: Data Set
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Beyonce Aguila Cantuba
Quezon City, Philippines
+63 949 994 9438 | beyonce.cantuba.ab@ust.edu.ph
CURRICULUM VITAE
EDUCATIONAL BACKGROUND
University of Santo Tomas, Manila
BACHELOR OF ARTS IN ECONOMICS
A.Y. 2020 Present
University of Santo Tomas, Manila
SENIOR HIGH SCHOOL
A.Y. 2018 2020
Colegio San Agustin, Biñan
JUNIOR HIGH SCHOOL
A.Y. 2014 2018
Biñan, Laguna
ACADEMIC HONORS
Dean’s Lister, 2020 – Present
University of Santo Tomas, Faculty of Arts and Letters
Manila
EXTRACURRICULAR EXPERIENCE
Executive Coordinator to the Chief of Staff, UST Artlets Economic Society
August 2020 Present
University of Santo Tomas
SERVICE TO THE UNIVERSITY
Project Co-Head, “ Think Pink! Through the Economic Lenses” (March 2024)
The webinar week long campaign that aims to empower and support women in
celebration for Women’s month.
University of Santo Tomas
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WORK EXPERIENCE
BCM Industrial and Construction Company Intern
2023 - Present
- Creating business meeting presentations & publication
materials.
- Conceptualized & organized events & business campaigns, from
sourcing out
giveaways and designing the venues to creating the program.
- Encoding of company daily purchases.
Cornerstone Entertainment Intern
August 2023October 2023
