Institutional Quality and Youth Unemployment in the MENA Region: Panel Data Evidence and Policy Implications

Abstract

This study investigates the impact of institutional quality on youth unemployment across 15 MENA countries over the period 1996-2023. Despite the growing body of research on youth unemployment in the region, its institutional dimension has received limited scholarly attention, notwithstanding the persistent governance challenges characterizing many MENA economies. Employing fixed and random effects estimators, selected via the Hausman specification test, on a balanced panel of 420 observations, the study integrates the six World Governance Indicators into a panel labour market framework. Empirical results confirm that economic growth and population growth are the most robust macroeconomic determinants of youth unemployment outcomes, with faster growth reducing and faster demographic expansion increasing joblessness among youth. Human capital, foreign direct investment and inflation do not exhibit consistent or statistically significant effects across specifications. All six dimensions of institutional quality are negatively and significantly associated with youth unemployment, with government effectiveness and political stability emerging as the most influential channels. These findings underscore the importance of complementing macroeconomic stability strategies with institutional reforms, particularly strengthening political stability, government effectiveness, and accountability mechanisms, to effectively address the chronic challenge of youth unemployment in the MENA region. The study provides actionable policy guidance for MENA governments, recommending that institutional reform encompassing public administration capacity, anti-corruption measures, and regulatory improvement, be treated as a central and indispensable pillar of any credible youth employment strategy.