Abstract
Does Okun’s Law Exist in Nigeria? Evidence from the ARDL Bounds Testing Approach
Highlights
The relationship between unemployment and economic growth has been extensively studied since Okun’s study in 1962, which determined that when unemployment is reduced by 1 percentage point, GNP increases by approximately 3%
The results demonstrate that the computed F-statistic (11.129) is greater than I(1) at the 1% level. This result implies that a cointegrating relationship exists between the unemployment rate and economic growth
We examined the relationship between economic growth and the unemployment rate during 1972-2004, because of the high instability exhibited by both economic growth and the unemployment rate during this period
Summary
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%. The results suggest that an unstable Okun’s coefficient exists for both Canada and the United States, and that the responses of the unemployment rate to variations in output growth increased over time in both countries. The few studies regarding the unemployment-output nexus in Nigeria used inadequate sample data (see Abraham, 2014; Bankole & Fatai, 2013), employed inappropriate estimation methods or failed to conduct important tests (see Jibir et al, 2015). This study fills a gap by estimating the Okun-type relationship in Nigeria using a recently developed ARDL bounds testing technique and conducting all the important tests (unit root test, diagnostic tests, etc.,) in addition to expanding the scope of the study (by analyzing, the data for 1970-2014).
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