Abstract
This article examines the responsiveness of changes in the unemployment rate to changes in output for Brazil, Russia, India, China, and South Africa (BRICS) using aggregate and disaggregated data from 1991 to 2018. We also split the entire sample period into two subsamples (from 1991 to 2008 and 2009 to 2018) to see the responsiveness of changes in the unemployment rate to changes in the GDP in pre and post global financial crisis period of 2007–2008. Three different econometric methods were employed for conducting the analysis. Results obtained from aggregated and disaggregated data for the entire sample and two subsamples confirm the validity of the Okun law for BRICS. The postcrisis period Okun’s law estimates are larger than those from the full sample and precrisis period. Disaggregated data results show private consumption is the main determinant of the unemployment rate and its estimate is negative and significant. Along with consumption expenditures, other variables that have relevancy in determining changes in the unemployment rate are government expenditures, exports, and imports. Based on aggregated and disaggregated data results, it is recommended that the relevant authorities must focus sustainable economic growth for reducing unemployment rate in the country. Particularly, they must incentivize consumption and government expenditures, boost exports, and curtail imports for reducing the unemployment rate.
Highlights
The inverse relationship between economic growth and unemployment rate, originally discovered and empirically estimated by Okun (1962), has evolved into a major macroeconomic postulation since and is known as Okun’s law in his honor
The sign and significance suggest that Okun’s law holds for BRICS despite its magnitude is fairly lower than the one suggested by Okun (1962)
This article attempts to evaluate the relationship between unemployment rate and economic growth as postulated by Okun (1962) for BRICS for the period from 1991 to 2008
Summary
The inverse relationship between economic growth and unemployment rate, originally discovered and empirically estimated by Okun (1962), has evolved into a major macroeconomic postulation since and is known as Okun’s law in his honor. It is termed as “empirical regularity” and is considered as a core constituent of macroeconomic theory and empirical research [Blinder (1997), Sørensen and WhittaJacobsen (2010), Dornbusch et al (2011), Romer (2012), Sogner and Stiassny (2002), Mankiw (2012), Huang and Yeh (2013), and Ball et al (2014)].
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
