The relationship between unemployment and economic. Discover arthur okuns findings on the relationship between economic growth and unemployment levels. This study employs the autoregressive distributed lag ardl bounds testing technique to examine whether okuns law exists in nigeria during 19702014. To achieve this objective, an annual time series data for unemployment and output were collected from the world bank and reserve bank of st. The empirical results indicate that a cointegrating or long term relationship exists between the unemployment rate, economic growth and. Okuns law pertains to the relationship between the u. The theoretical proposition of the okuns law is that a negative relationship exists between unemployment rate and economic growth. In other words, this law is intended to tell us how. However, recent revisions to gdp data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions. Given a onetoone relation, our results confirm the okuns. Okuns law and long term cointegration analysis for oecd countries 19872012 even though, there are so many so long discussions on the relation between population increase and economic growth, today, general opinion tends to believe that there is a direct relation between population increase and economic growth. Using annual data covering the period 19702008, time series techniques are used to test the relation between unemployment and economic growth and to obtain estimates for okuns coefficient. The relationship between unemployment and economic growth. After a unit root check was carried out using the augment dickey fuller and philip perron tests, using.
This study was done with regards to total unemployment, youth unemployment, male and female unemployment rates and economic growth rate within a time of 1991 to 2015. The trends in unemployment rates in nigeria from 19862014 in comparison to economic growth have been puzzling. The main objective of this work is to measure the reaction of unemployment to growth in some. In addition, this study considers the role of oil prices in the nigerian economy.
In economics, okuns law describes the relationship between production output and employment. A difference model approach sikiru jimoh babalola lecturer, department of economics, modibbo adama university of technology, yola, adamawa state, nigeria jimoh olakunle saka lecturer, department of economics, lagos state university,ojo, ojo, lagos nigeria idris abiodun adenuga. Apr 21, 2014 the traditional relationship between unemployment and output growth known as okuns law appeared to break down during the great recession. A notable exception to okuns critics is ball et al. The granger causality test shows a unidirectional relationship between unemployment and nigerias economic growth. May 08, 2019 learn about okun s law, why it is important, and how it has stood the test of time. This study intends to test the validity of okuns law in nigeria. For example, evidence from the central bank of nigeria. Infant mortality and public health expenditure in nigeria. Okuns law and long term cointegration analysis for oecd. The detected break dates of the largest changes the coefficients appeared to be around recessions. Pdf an empirical estimation of okuns law in context of. The relationship between production and unemployment in japan. Does unemployment significantly impact on economic.
The study that found contracting results for nigeria was by bankole and fatai 20. Policy lessons from okuns law for african countries. It states that when unemployment falls by 1%, gnp rises by 3%. More specifically, according to the version of okuns law, to. Zidong an tayeb ghazi nathalie gonzalez prieto abstract. Unemployment and economic growth in nigeria semantic scholar. The main aim of this study is to empirically examine,investigate and test the relationship between unemployment rate and economic growth within jordanian economy over the period of time 19822016, in order to examine the validity of okuns law, which suggests a negative relationship between unemployment rate and economic growth, several economic methods are employed by using. The validity of okuns law, case of jordan pdf paperity. Employment generation programmes and policies towards reducing the level of unemployment in nigeria may thus significantly impact on the level of output on an increasing scale. The two versions of the difference model approach of the okuns law are used even though one of them is frequently used in the literature. Bankole and fatai 20 estimated the okuns coefficient, and checked the validity of okuns law in nigeria, using the time series annual data during the. However, the literature pertaining to okun s law has provided mixed empirical results and findings depending on the testing periods, comparisons of different countries and methodologies used. Learn about okuns law, why it is important, and how it has stood the test of time.
Okun s law pertains to the relationship between the u. You will be redirected to the full text document in the repository in a few seconds, if not click here. Less demand for goods leads to a decrease in production, in turn prompting layoffs. On nigeria, arewa and nwakanma 2012 conduct an empirical evaluation of the relationship between output and unemployment using the first difference and outputgap models of okuns law. Economic fluctuations and growth program, monetary economics program this paper asks how well okuns law fits shortrun unemployment movements in the united states since 1948 and in twenty advanced economies since 1980. Analysis of the effect of unemployment on the economic.
The population growth result which is also included in model is contemporaneous to the economic growth. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. Pdf this study employs the autoregressive distributed lag ardl bounds testing technique to examine whether okuns law exists in nigeria. Discover arthur okun s findings on the relationship between economic growth and unemployment levels. Jan 23, 2019 okuns law is named for the man who first described it, arthur okun nov. The multivariate regression techniques were used for the study. The two versions of the difference model approach of the okun s law are used even though one of them is frequently used in the literature. A crosscountry comparison of okuns coefficient, journal of comparative economics, elsevier, vol. Given a onetoone relation, our results confirm the okuns 1962. Asean economic community is active in blueprint on 20 november 2007.
When there are no vacancies for those willing to work, potential output is. The objective of this article is to investigate the existence of an okuntype relationship for the nigerian economy during the period 19702009. Discussing the fit of okuns law in llmics is a particularly challenging subject for several reasons. The study further reveals that okun s coefficient is in agreement with previous estimates for the countries in the sample with the exception of united kingdom. The theoretical framework of this study was based on the okuns law using the reverse form of the first difference. After the publication of okuns seminal paper, many studies were carried out to test okuns law in several countries. Abstract the research focused on evaluating the relevance of okuns law in nigerias economy.
A test of okuns law for 10 eastern european countries. Arthur okun developed his idea by concluded that the unemployment rate drops by 1 percent for every 3 percent point increase in gdp. Evidence from the ardl bounds testing approach, contemporary economics, university of economics and human sciences in warsaw. Table 1 provides estimates of the okun coefficient in some developed and developing countries including algeria for various version of okuns law. Okuns law is an empirical relationship between changes in aggregate output relative to its potential trend and changes in the unemployment rate relative to its natural rate. The objective of this study is to investigate the existence of an okuntype relationship for the nigerian economy during the period 197020. Oladavid oluyomi, oluwatobi stephen and ogundipe adeyemi subject. Test of okuns law for the 10 eastern european countries thomas boulton april 2010 this project is submitted in part fulfilment of the requirement for the completion of a ba international economics at the london metropolitan university. Okuns law explains the relationship between unemployment and economic growth in an economy. This opinion is supported by some empirical studies. Our main conclusion is that this stylized fact, which is consistent in advanced countries, generally does not hold in these economies. Unemployment, output growth, okuns law, nigeria, ardl. In order for manufacturers to produce more goods, they must hire more people. The work is the sole responsibility of the candidate.
The main aim of this study is to empirically examine,investigate and test the relationship between unemployment rate and economic growth within jordanian economy over the period of time 19822016, in order to examine the validity of okuns law, which suggests a negative relationship between unemployment rate and economic growth, several economic methods are employed by using descriptive. This paper asks how well okun s law fits shortrun unemployment movements in the united states since 1948 and in twenty advanced economies since 1980. The objective of this article is to investigate the existence of an okun type relationship for the nigerian economy during the period 19702009. This study harps on the okuns law to examine the patterns of economic growth in nigeria.
The empirical evidence shows that there is positive coefficient in the regression, implying that okuns law interpretation is not applicable to nigeria. In estimating the okuns coefficient, and checking the validity of okuns law in nigeria, during the period 19802008, they established a positive coefficient in the regression, implying that okuns law interpretation is not applicable to nigeria. Pdf investigating okuns law in nigeria through the. Modeling the relationship between gdp and unemployment for. Nigeria between 1986 and 2014 never translated into economic development as unemployment has eaten deep into the fabric of the nigerian economy over the years. Okun s law, developed by arthur okun is an important concept in macroeconomics and has been studied extensively in the literature. Time series data of real gdp and rate of unemployment of pakistan have been used to find the validity of okun s law. In the third part, the framework of the okuns law is revealed. Analysis of the effect of unemployment on the economic growth. Okun 1962 found that in postwar period, on the average.
Okuns law is one of the most enduring stylistic facts in macroeconomics. In the fourth part of the study, there are studies presenting the relation between economic growth and unemployment. The breakdowns in okuns law seemed to be highly correlated with the business cycle. Okun s law is an empirical relationship between changes in aggregate output relative to its potential trend and changes in the unemployment rate relative to its natural rate.
We test the performance of okuns law in low and lower middle income countries. Therefore, this study attempts to find out the applicability of the okuns law on the. The relationship between unemployment and economic growth rate in arab country. The study also finds robust evidence of bilateral causality between output and unemployment. While teaching at yale university, okun was appointed to president john kennedys council of economic advisors, a position he would also hold under. This study examined the relationship between unemployment and economic growth in nigeria using an autoregressive distributed lag approach.
The essence of this paper is to find out if the much vaunted kaldorverdoorns law on positive. This paper reexamines the validity of okuns law for selected developed countries over 197020. Born in new jersey, okun studied economics at columbia university, where he received his ph. Dec 11, 2015 this paper reexamines the validity of okuns law for selected developed countries over 197020. It finds a negative correlation between quarterly changes in the unemployment rate and real output growth, which is quantitatively quite. Despite an economical growth caused by directly with population growth, it is known that there is a. This paper, empirically, tests the validity of okuns law in nigerian economy from 19802012. The okuns law neely, 2010 is an observation that represents a relationship between gdp and unemployment rate. This study empirically examines the relationship between unemployment and output in india by fitting the okuns law. Okuns law okuns law is an inverse relationship between cyclical fluctuations in output and the unemployment rate. This study employs the autoregressive distributed lag ardl bounds testing technique to examine whether okun s law exists in nigeria during 19702014. Rezitis and apergis 2003 analyse the validity of okuns law for certain regional areas in greece over the period 19601997.
The empirical results showed the existence of inverse relationship between output and unemployment in malaysia. In the following sections, data, methodology and empirical results are presented. Okun s law can be a useful guide for monetary policy, but only if the natural rate of unemployment is properly measured. Testing the validity of okuns law in nigeria idosi. We find that okun s law is a strong and stable relationship in most countries, one that did not change substantially during the great recession. This study is an attempt to investigate the relationship between unemployment and gdp growth in arab. Using both engle and granger 1987 cointegration test and a fully modified ols models, they found that okuns law did not hold for nigeria during the testing period. Updating okuns law for comparison with okuns original estimates, this section updates okuns law using all of the data currently available since world war ii. This study employs autoregressive distributed lag ardl bounds testing approach to cointegration and granger causality technique to empirically examines the nature of relationship between infant mortality and public expenditure on health in nigeria from 1980 2016.
Jul 15, 2019 this study empirically examines the relationship between unemployment and output in india by fitting the okuns law. However, dynamic ols estimates portray a somewhat different picture. Even though, there are so many so long discussions on the relation between population increase and economic growth, today, general opinion tends to believe that there is a direct relation between population increase and economic growth. Pdf investigating okuns law in nigeria through the dynamic.
Freeman 2001 used new developments in trend cycle decomposition to test okuns law for a panel of ten industrial countries, that okuns original estimate for the u. Does unemployment significantly impact on economic growth in. The linear relationship of the population growth signifies that government should. This paper, empirically, tests the validity of okun s law in nigerian economy from 19802012. Okun s law shows three to one link between real gdp and rate of unemployment. Bankole and fatai 20 studies the validity of okuns law in nigeria and estimated okuns coefficient by using the annual data from 19802008. Okuns law is a reduced version of the phillips regularity, more precisely, of the segment pertaining to the research of the relation between unemployment and output. Okuns law, page 3 recent study, bankole and fatai 20 estimated okuns coefficient for nigeria from 1980 to 2008. Interpreting deviations from okuns law san francisco fed. Okuns law has been used for specific projections of economic growth. Okuns law investigates the statistical relationship between a countrys unemployment rate in relation to the growth rate of its economy.
Okun has been found that the high or low gdp by 1% will lead to high or low unemployment rates by 0. The empirical estimation starts with testing the unit root evidence using perron 1997 and elliot et al. Pdf investigating okuns law in nigeria through the dynamic model. This study therefore investigates okuns law in nigeria between 1985 and 2015 through the dynamic.
Hereinafter referred to as knotek, how useful is okuns law. Coefficient of okun s law is estimated to check whether this law exist in pakistans economy or not. Okuns law, unemployment, economic growth, ecm, nigeria. Specifically, the study intends to examine the impact of unemployment on the nigerian economic growth and testing the sensitivity of output to change in unemployment rates in both short run and long run. The study employs an augmented employment demand equation and timeseries data 19802015. Okuns law aims to tell us or to reflect the statistical data regarding the increase of percentage of unemployment rate and economic growth. Using the hodrickprescott and bandpass filtering techniques. The two versions of the difference model approach of the okuns. Unemployment, okuns law, okun law coefficient, cointegration, nigeria created date.
1426 840 193 640 612 816 1014 1255 1378 1374 1463 673 281 140 631 1448 1373 956 134 1107 693 822 559 343 685 46 435 1315 1371 831 1501 1388 428 1188 1539 146 888 619 759 498 341 991 489 128 160 1178 473