Okun’s law in the Visegrad Group countries: its regional disaggregation and determinants

Abstract

ABSTRACT The paper examines Okun’s law on a regional level and its determinants for the four Visegrad Group (V4) countries in Central Europe. Unlike other studies on regional Okun’s law, the paper applies a disaggregation procedure to estimate Okun’s law for economies and regions, and seeks to identify the factors that determine the regional heterogeneity observed in Okun coefficients. The analysis uses data for NUTS 2 regions of Czechia, Hungary, Poland and Slovakia for the period 2001–2020. The accounting principle embedded in the disaggregation framework entails that regions around the capital cities display higher unemployment-output responsiveness. With endogeneity handled, the level of economic prosperity and accumulated human capital are found to be robust drivers of differences in the unemployment-output elasticity on a regional level.