Economic Growth and Unemployment: An Empirical Assessment of Okun’s Law in The Case of Liberia (2001-2019)

doi:10.7176/jesd/12-14-13

Abstract

The purpose of this study is to examine the connection between economic growth and unemployment in Liberia between 2001- 2019. The unit root test and the Augmented Dickey-Fuller (ADF) Co-integration test were used to examine the relationship between unemployment and GDP. The Auto Regressive Distribution Lag (ARDL) bounds test is used to determine if the variables are linked in the long run. According to the results of the ARDL model, there is no long-run relationship between unemployment and economic growth. This study' results have particularly important policy implications for Liberian economic authorities. In both the long and medium term, the observational results show no meaningful relationship between unemployment and economic growth. The Liberian government should direct its spending toward activities that directly and indirectly promote the creation of employment and decent jobs, a conducive environment and flexible labor market policies or legislations that are not impediments to job creation, and finally, the government should prioritize labor intensive industries. Keywords : Okun's law, unemployment rate, Economic Growth, Liberia DOI: 10.7176/JESD/12-14-13 Publication date: July 31 st 2021

Highlights

For many years, Liberia's unemployment rate has been reported at 85 percent, which is utterly impossible
Liberia's civil war was at its peak at the time; all government offices had been shuttered, and many major businesses, including the LiberianAmerican-Swedish Mining Company (LAMCO) and Firestone, had been taken over by fighting factions
Prior to the civil war, the Liberian economy was highly reliant on iron ore mining

Summary

Introduction

Liberia's unemployment rate has been reported at 85 percent, which is utterly impossible. Okun's law was tested for ten industrial countries (the United States, the United Kingdom, Japan, Canada, Germany, Italy, France, the Netherlands, Sweden, and Australia), including new developments with trend decomposition, and Freeman (2001) discovered that Okun's coefficient, which was originally three points, is only less than two points of GDP growth for every one percent change in unemployment. Most research, in developing nations, confirms Okun's (1962) connection to assess the relationship between the product and the unemployment rate, the results vary by country and over time depending on the kind of economic development accomplished in each state. Revenge and Beutalia; Lee, 1995; Sogner & Stiassny, 2000; Harris & Silverstone, 2002; Zagler, 2001; Yerdelen, 2003; Ivan & Oleg, 2011, u.d

The Data and Methodology

Findings of the study or empirical results

Findings

Conclusion