Does Okun’s Law Exist in Nigeria? Evidence from the ARDL Bounds Testing Approach

Abstract

This work is licensed under a Creative Commons Attribution 4.0 International License. This study employs the autoregressive distributed lag (ARDL) bounds testing technique to examine whether Okun's law exists in Nigeria during 1970-2014. In addition, this study considers the role of oil prices in the Nigerian economy. The empirical results indicate that a cointegrating or long term relationship exists between the unemployment rate, economic growth and oil prices. In addition, the results demonstrate that in Nigeria, in the long term, unemployment has a negative and significant effect on economic growth, and oil prices have a significant and positive effect on economic growth. The coefficient of unemployment (0.18%) for this study is far less than the result reported by Okun and other studies that focused on developed countries. This suggests that the Okun coefficient is not only unstable but varies for different countries, and does not remain constant for Nigeria. However, policymakers should take steps to reduce unemployment to enhance economic growth in Nigeria. Introduction The relationship between unemployment and economic growth has been extensively studied since Okun's study in 1962 (cited in Farsio & Quade, 2003), which determined that when unemployment is reduced by 1 percentage point, GNP increases by approximately 3%. Scholars have evaluated the link between unemployment and economic growth by either regressing output on the unemployment rate or regressing unemployment on output growth. Certain studies have tested Okun's hypothesis and reported mixed results because they used different datasets, various estimation techniques, various time periods, and different countries with disparate features. Some studies have determined that output growth has a negative effect on unemploy

Asymmetry relationship between economic growth and unemployment rates in the Saudi economy: Application of Okun’s law during the period 1991–2017

“…This indicates the existence of a co-integration relationship between the two variables; thus, we say that there is a long-run equilibrium relationship between the GDP and unemployment rates in the Saudi economy. This is consistent with Ting and Ling (2011) and Abu (2017).…”

“…These results are supported by Okun (1962), Ting andLing (2011), andAbu (2017), and they are incompatible with Akram et al (2014) and Driouche (2013).…”

“…The empirical results reveal the existence of Okun's law in the Saudi economy. Coefficients estimated by using the Gap Version and concluded that there was a negative and significant impact of the gross domestic product gap on unemployment rates, with a 1% increase in Gross Domestic Product being correlated with a 0.29% decrease in the unemployment rate, consistent with Okun (1962), Prachowny (1993), Ting andLing (2011), andAbu (2017). This study attempts to contribute to the literature on Okun's law and is organized in five section; section 1 is an introduction to the work, section 2 is devoted to literature review and hypotheses, section 3 introduces data and methodology, empirical results and discussion are the essential part of the study which are discussed in section 4, finally, section 5 focuses on implication, limitation and the future of research.…”

Examining the Effects of Unemployment on Economic Growth in Sri Lanka (1991-2017)

“…A number of studies have followed investigating empirically the relationship between output (GDP) and unemployment (Soylu, 2018;Abu, 2016;Abdul-khaliq, 2014;Sahin et al, 2013Hussain et al, 2010. These studies have discovered the validity of the relation between output and unemployment rate and reported mixed results.…”

“…In examining unemployment and economic growth nexus around the world, some studies have proved the existent of inverse relationship between economic growth and unemployment (Soylu,2018;Abu, 2016;Abdulkhaliq,2014;Hussain et al, 2010); while some showing a positive relationship (Kreishan ,2017;Sahin et al, 2013). However, very few attempts to test this relationship have been conducted in developing countries.…”