Joint dynamics of inflation and unemployment in MENA economies: Application of a simultaneous equations model

Dynamique conjointe de l’inflation et du chômage dans les économies de la région MENA: application d’un modèle à équations simultanées

Abderraouf Mtiraoui (), Molka Ben Ayed () and Wiem El Abed
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Abderraouf Mtiraoui: MOFID-Université de Sousse
Molka Ben Ayed: USO - جامعة سوسة = Université de Sousse = University of Sousse
Wiem El Abed: USO - جامعة سوسة = Université de Sousse = University of Sousse

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Abstract: Inflation and unemployment remain among the most persistent macroeconomic challenges constraining sustainable economic growth in the Middle East and North Africa (MENA) region. Although these relationships have been widely examined, their simultaneous interactions remain insufficiently explored because of endogeneity and reciprocal causality. This study investigates the joint dynamics of inflation, unemployment, and economic growth in 16 MENA countries over the period 2011-2024. To account for structural interdependence among the endogenous variables, a simultaneous equations model is estimated using the Three-Stage Least Squares (3SLS) method. The empirical results reveal a statistically significant bidirectional relationship between inflation and unemployment. Inflation increases unemployment, while unemployment also exerts a positive and significant effect on inflation, confirming the presence of strong feedback mechanisms. Furthermore, both inflation and unemployment have significant negative effects on economic growth, highlighting the adverse macroeconomic consequences of persistent price instability and labor market imbalances. By contrast, foreign direct investment and domestic investment contribute positively and significantly to economic performance, whereas trade openness exerts a negative effect, reflecting the structural vulnerabilities of MENA economies. The findings also provide evidence of jobless growth and emphasize the importance of institutional quality in promoting macroeconomic stability and long-term growth. By jointly modeling inflation, unemployment, and economic growth within a unified econometric framework, this study extends the empirical literature on macroeconomic interactions in emerging economies and offers robust evidence for the MENA region. The results underscore the need for coordinated monetary, fiscal, and labor market policies, complemented by institutional reforms, to foster sustainable and inclusive economic growth.

Keywords: Inflation; Unemployment; Economic Growth; Simultaneous equation model (search for similar items in EconPapers)
Date: 2026-08-31
New Economics Papers: this item is included in nep-ara
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Published in Modern Economic Science , In press, 48 (2), pp.737-754

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