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Article
Publication date: 16 December 2022

Malika Neifar

In this paper, the author aims to investigate the relationship between economic growth and unemployment in six Arab countries from Middle East and North Africa (MENA) zone…

Abstract

Purpose

In this paper, the author aims to investigate the relationship between economic growth and unemployment in six Arab countries from Middle East and North Africa (MENA) zone including Tunisia, Egypt, Morocco, Lebanon, Jordan and Oman through the implementation of Okun's law using quarterly dataset covering the time period 2000: 1–2014: 4.

Design/methodology/approach

In this paper, static and dynamic linear and nonlinear models are used to test the linkage between cyclical unemployment and cyclical growth rate.

Findings

The empirical results from considered models confirm an inverse linkage between unemployment rate and economic growth, as the Okun's law suggests (except for Oman). In a nonlinear autoregressive dynamic linear (NARDL) framework and gap specification, statistically significant Okun's coefficients indicate that output growth can be translated into employment gains. Absolute effect of an economic contraction is significantly larger than that of an expansion in Tunisia, Egypt, Morocco and Lebanon. The opposite is true for Jordan and Oman.

Practical implications

Empirical finding provides then an additional proof that Okun's law could exist in a developing countries such as Tunisia, Egypt, Morocco, Lebanon and Jordan. Hence, any attempt to increase gross domestic product (GDP) through some economic fiscal and/or monetary policies in these countries would reduce unemployment rate.

Originality/value

Based on asymmetric specification, the author can conclude with precision that an economic upturn of 3.37, 2.98 and 2.5%, respectively, in Tunisia, Morocco and Egypt reduces unemployment by 1%, whilst the downturn of 5.03 and 2.43% (and about 12%), respectively, in Tunisia and Morocco (and Lebanon and Jordan) achieves the opposite.

Details

African Journal of Economic and Management Studies, vol. 14 no. 4
Type: Research Article
ISSN: 2040-0705

Keywords

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 testing the…

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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. 22 no. 1
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 unemployment and…

1001

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…

2923

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 by the…

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: 10 July 2023

Mario Gómez and Oluwasefunmi Eunice Irewole

Unemployment is one of the major challenges facing most countries, including Africa as a continent. Seeking how to reduce unemployment, debt, inflation and increase gross domestic…

Abstract

Purpose

Unemployment is one of the major challenges facing most countries, including Africa as a continent. Seeking how to reduce unemployment, debt, inflation and increase gross domestic product (GDP), foreign direct investment (FDI) and gross capital formation in the continent has been an agenda of governments, policy makers and economists to. This study examines the relationship between economic growth, inflation, debt, FDI, gross capital formation, labor force, population and unemployment in Africa.

Design/methodology/approach

An updated panel dataset of 29 African countries was selected from different regions from 1991 to 2019. These countries were selected based on their unemployment, population growth and inflation rates. The Pesaran cross-sectional dependence and panel unit root test (the Dickey–Fuller cross-sectional supplemented and the Im-Pesaran-Shin cross-sectional) were applied. Further, the panel Autoregressive Distributed Lag (ARDL) model (Bounds test) and pooled mean group (PMG) estimator were utilized in this work.

Findings

This shows that economic growth, debt, labor force and population have a positive relationship with unemployment in the long run. Therefore, an increase in these variables generates an increase in the selected African countries' unemployment growth. In contrast, inflation, FDI and gross capital formation have a negative relationship with unemployment in the long run, which implies that an increase in these variables reduces unemployment in the selected African countries.

Research limitations/implications

This study has potential limitations because some data from the countries are not up to date and some years are missing from the data.

Practical implications

This study contributes to understanding unemployment and Okun's law in the African economy. This study shows that an increase in economic growth leads to a rise in unemployment, while an increase in inflation leads to a decrease in unemployment.

Originality/value

This paper provides an insight into the major factors that increase and reduces unemployment for government and policy marker to take the adequate measure.

Details

African Journal of Economic and Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-0705

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 high…

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 from the…

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…

1190

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

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