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Article
Publication date: 6 September 2022

Isiaka Akande Raifu

Researchers have long been interested in testing the validity of Okun’s law due to its macroeconomic policy implications. However, most of the studies have focused on…

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Abstract

Purpose

Researchers have long been interested in testing the validity of Okun’s law due to its macroeconomic policy implications. However, most of the studies have focused on testing the law using aggregate data on unemployment and output. In recent times, attention has been shifted to testing the law at the sectoral level. In light of this, the purpose of this study is to examine the response of unemployment to sectoral outputs in Nigeria using the data that covers a period from 1981-2020.

Design/methodology/approach

To test the validity of Okun’s law at the sectoral level, both difference and gap methods of specifying Okun’s law are used. Furthermore, the author also uses a series of estimation methods, which include ordinary least squares (OLS), dynamic OLS (DOLS), fully modified OLS (FMOLS) and canonical cointegration regression (CCR).

Findings

The results, based on the difference model, are mixed irrespective of estimation and data filter methods. For the gap model, Okun’s law holds for all sectors irrespective of estimation techniques (especially DOLS, FMOLS and CCR) when the Hodrick–Prescott filter method is used to filter data. However, the author discovers that the coefficients of Okun’s law vary across the sectors as the response of unemployment to services sector output is greater than the rest of the sectors. When the Hamilton filter method is used to filter data, the results appear to be mixed across the sectors. The results are almost ditto when all the sectoral variables are put in one model.

Originality/value

To the best of the author’s knowledge, this is the first study that investigates the validity of sectoral Okun’s law in Nigeria, the leading economy in Africa.

Details

International Journal of Development Issues, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1446-8956

Keywords

Article
Publication date: 9 May 2016

Athina Economou and Iacovos N. Psarianos

The purpose of this paper is to examine Okun’s Law in European countries by distinguishing between the transitory and the permanent effects of output changes upon…

Abstract

Purpose

The purpose of this paper is to examine Okun’s Law in European countries by distinguishing between the transitory and the permanent effects of output changes upon unemployment and by examining the effect of labor market protection policies upon Okun’s coefficients.

Design/methodology/approach

Quarterly data for 13 European Union countries, from the second quarter of 1993 until the first quarter of 2014, are used. Panel data techniques and Mundlak decomposition models are estimated.

Findings

Okun’s Law is robust to alternative specifications. The effect of output changes to unemployment rates is weaker for countries with increased labor market protection expenditures and it is more persistent for countries with low labor market protection.

Originality/value

The paper provides evidence that the permanent effect of output changes upon unemployment rates is quantitatively larger than the transitory impact. In addition, it provides evidence that increased labor market protection mitigates the adverse effects of a decrease in output growth rate upon unemployment.

Details

Journal of Economic Studies, vol. 43 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 1 March 2003

Farzad Farsio and Stacey Quade

Okun's law has been proven to be one of the most accepted theories in the macroeconomics field. It describes the relationship between gross domestic product (GDP) and…

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Abstract

Okun's law has been proven to be one of the most accepted theories in the macroeconomics field. It describes the relationship between gross domestic product (GDP) and unemployment. Arthur Okun's (1962) study was developed to help apply appropriate macroeconomic policy changes. Though the coefficient has been re‐estimated, Okun's original work states that a one‐percentage point reduction in the unemployment rate would produce approximately 3% more output. This correlation has continuously been scrutinized, its accuracy studied, and the degree of dependency these variables have on one another has been evaluated.

Details

Humanomics, vol. 19 no. 3
Type: Research Article
ISSN: 0828-8666

Abstract

Details

Quantitative and Empirical Analysis of Nonlinear Dynamic Macromodels
Type: Book
ISBN: 978-0-44452-122-4

Article
Publication date: 6 August 2020

Luis Cárdenas del Rey and Rafael Fernandez-Sanchez

This paper studies one of the most paradoxical facts of the Spanish economic growth during the period 1982–2007: high growth of investment and aggregate demand accompanied…

Abstract

Purpose

This paper studies one of the most paradoxical facts of the Spanish economic growth during the period 1982–2007: high growth of investment and aggregate demand accompanied by the stagnation of labor productivity, especially from 1994.

Design/methodology/approach

The authors propose two hypotheses: first, that the productive structure neutralized the mechanisms that link investment with productivity, essentially due to the low capital efficiency of the job-creating sectors (JCs); and consequently, investment drove production almost exclusively through employment, generating a trade-off between employment and productivity.

Findings

The econometric results find evidence in favor of both hypotheses applying a time-series methodology (ARIMA) to EU KLEMS data for a period of 25 years and 25 industries of the Spanish economy.

Originality/value

The first contribution of this paper is to offer an interpretation of the phenomenon from a perspective that combines elements of productive supply and aggregate demand, representing a novel contribution to the specialized literature. In addition, the authors show how the Kaldor-Verdoorn law could be neutralized due to employment creation (Okun's law) and the presence of a productivity-employment trade-off.

Details

Journal of Economic Studies, vol. 48 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 4 July 2016

Jose Caraballo-Cueto

The Dominican trade deficit represents almost 16 per cent of its gross domestic product (GDP) and is insufficiently counteracted by tourism and remittances; not even a…

Abstract

Purpose

The Dominican trade deficit represents almost 16 per cent of its gross domestic product (GDP) and is insufficiently counteracted by tourism and remittances; not even a high devaluation closed the imbalance. Eighty per cent of the exports are from free trade zones. These facts reflect their low domestic entrepreneurial capacity. The purpose of this study is to critically evaluate the Dominican economic model.

Design/methodology/approach

The author motivates the discussion with descriptive statistics and then applies multiple time-series regressions at the macro level and at the industry level.

Findings

The attraction of foreign firms appears to substitute, and not complement, the building of local capacity. Regressions show that a GDP growth of 5 per cent does not decrease the high unemployment rate.

Originality/value

Using new Okun’s equations, it is concluded that sectors dominated by local producers and improvements in the trade balance better impact the unemployment. These findings challenge conventional wisdom that characterizes the Dominican economy as a “successful story”.

Details

International Journal of Development Issues, vol. 15 no. 2
Type: Research Article
ISSN: 1446-8956

Keywords

Article
Publication date: 7 August 2018

Omobola Adu, Oghogho Edosomwan, Abiola Ayopo Babajide and Felicia Olokoyo

The industrial sector has been identified as one of the means to address the issue of unemployment due to its role in ensuring sustainable development. However, evidence…

Abstract

Purpose

The industrial sector has been identified as one of the means to address the issue of unemployment due to its role in ensuring sustainable development. However, evidence from the Central Bank of Nigeria Statistical Bulletin reveals that the sector lags behind the agricultural and services sector in terms of its contribution to the gross domestic product. In light of this, the purpose of this paper is to ascertain whether the industrial sector development is a veritable tool in addressing the issue of unemployment in the long run for the Nigerian economy.

Design/methodology/approach

In order to determine whether industrial development is a veritable tool in addressing the issue of unemployment in the long run, the study makes use of the Autoregressive Distributed Lag model. The choice of this method over the commonly used Johansen co-integration approach is that it provides the mechanism to estimate the model in the presence of different order of integration among the macroeconomic variables; it allows us to combine and I(0) and I(1) series, while there is strict assumption of I(1) for all variables under the Johansen approach.

Findings

The major finding of the paper is that an inverse and elastic relationship exists between industrial output and unemployment. This suggests that the unemployment rate is very sensitive to changes in the industrial sector in Nigeria.

Research limitations/implications

The major limitation is the availability of recent data to capture recent happenings in the Nigerian economy.

Originality/value

The paper considers the entire sector encompassed in the industrial sector as opposed to focusing on just the manufacturing sector.

Details

International Journal of Social Economics, vol. 46 no. 1
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 9 May 2018

Isaac Koomson-Abekah and Eugene Chinweokwu Nwaba

This paper aims to investigate China–Africa Investment link, using over two decades of FDI’s data. During the specified periods, African economic growth path has been…

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Abstract

Purpose

This paper aims to investigate China–Africa Investment link, using over two decades of FDI’s data. During the specified periods, African economic growth path has been predominantly upward trending, despite multiple external threats. This impressive growth was partly because of the growth of FDI stock across the region. This study explores the various sources of FDI to Africa, mainly China’s FDI’s and how they influence African macroeconomic indicators, i.e. unemployment, export and import activities.

Design/methodology/approach

Pesaran autoregressive distributive lag (ARDL) is used as a framework to test the short-run and long-run relationship of indicators. Granger causality test checked the causality between growth and macroeconomic indicators.

Findings

The link between China’s FDI and African economic growth reported a negative/declining effect in both short and long run. In the long run, the effect of world FDI on growth was significant but not the in the short run. However, US FDI to Africa, China Export and Import from Africa reported an insignificant effect on growth. There was no evidence of Okun’s law, as a decrease in Africa unemployment does not increase growth. Overall, China’s FDI’s inflows to Africa are allocated to capital-intensive activities which has less labor employability. The Granger causality test reported a uni-directional link between growth and all series, except for human capital which experienced no link at all in all directions. Despite the issue of socio-infrastructure militating against growth in the region, African economy is likely to perform better, if more FDI’s are channeled into labor-intensive activities, because it has a reductive effect on unemployment.

Research limitations/implications

The research considered point annual FDI data but not accumulated stock and is a macro-based study, i.e. regional economy.

Practical implications

This paper bridged the literature gap in African investment performance by providing an empirical justification in understanding the inflow of FDI, especially China. This is a useful guard in policy design and implementations in the attraction of the right type of investment, so as to reduce unemployment and promote growth.

Originality/value

The authors confirm that this study has not been published elsewhere and is not under consideration in whole or in part by another journal.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 11 no. 2
Type: Research Article
ISSN: 1754-4408

Keywords

Article
Publication date: 6 June 2016

Adnan Rashid and Anwaar Ul Haq

The area about unemployment and its participation in the economic progress has been widely debated in literature. A significant number of studies on this impediment of…

Abstract

Purpose

The area about unemployment and its participation in the economic progress has been widely debated in literature. A significant number of studies on this impediment of economic boom have been found to consider the concept through Okun’s law. This study aims to apply some different approach and re-define the model about determinants of unemployment via inclusion of electricity generation in it. The purpose here for such consideration is the redefinition of determinants to clearly examine the role of each participant in solution of the problem.

Design/methodology/approach

This study for accomplishment of subject matter considers macroeconomic determinants of unemployment and includes electricity generation process in model. Such model is then empirically tested via structural vector autoregression (VAR) and impulse response function.

Findings

The empirical analysis of the study by stating the presence of long-run association comprehend the findings of most of the previously held studies on the subject matter. In addition to such co-integration, the presence of long-run restriction validates the main research question by explaining the negative relationship of GDP and electricity generation with unemployment of the country. Additionally, the responses of impulse function further validate the hypothesis by stating the more response of both electricity generation and GDP than any other variable in elucidating the problem of unemployment.

Research limitations/implications

The main limitation of this study is its restrictive use of electricity generation as a source of power generation. One can use other sources of power generation in addition to electricity generation in the study. Furthermore, this study only applies the concept of macroeconomic variables for getting the solution of problem. Besides macroeconomic factors, a number of microeconomic factors are also present that in addition to above mentioned macroeconomic variables help the policy makers to elucidate the problem.

Originality/value

The originality of this paper lies in its concept about involvement of electricity generation in determinants of unemployment. To date, no such study has been found in existing body of literature that has investigated the problem from this perspective, and, hence, this study represents contribution of authors to the area of literature.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 9 no. 2
Type: Research Article
ISSN: 1754-4408

Keywords

Article
Publication date: 17 May 2013

Michaeline Skiba and Patrick O'Halloran

Taking a broad review of the management and economics literature, the purpose of this paper is to examine how the recent “Great Recession” has had a disproportionate…

Abstract

Purpose

Taking a broad review of the management and economics literature, the purpose of this paper is to examine how the recent “Great Recession” has had a disproportionate adverse impact on US labor markets and created social disruptions to professional workers experiencing persistent unemployment or underemployment.

Design/methodology/approach

Secondary data analysis shows how the recent recession has had a disproportionate impact on employment. Recognizing underemployment as a potentially persistent state, the authors delineate the extent and consequences of underemployment.

Findings

Analyses of unemployment and underemployment resulting from the recent recession suggest it has had a particularly severe detrimental impact on worker benefits, incomes and employment prospects for most US workers.

Research limitations/implications

Secondary data analysis is a major limitation but results justify a call for further research into the potential increase in the long‐term economic displacement of professional workers.

Originality/value

This paper is unique in applying economic and management constructs in an analysis of the origins, consequences and recommendations for decreasing the rising level of underemployment among professional US workers.

Details

Management Research Review, vol. 36 no. 6
Type: Research Article
ISSN: 2040-8269

Keywords

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