Okun's Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012)

International Research Journal of Finance and Economics, Issue: 119, February 2014, pp.77-85.

9 Pages Posted: 21 May 2014

See all articles by Bilal Kargi

Bilal Kargi

Aksaray University - Department of Banking and Finance

Date Written: May 20, 2014

Abstract

Even though, there are so many so long discussions on the relation between population increase and economic growth, today, general opinion tends to believe that there is a direct relation between population increase and economic growth. This opinion is supported by some empirical studies. Despite an economical growth caused by directly with population growth, it is known that there is a reverse relation between unemployment and growth known as Okun’s Law. This relation, suggesting that every 1 point decrease in unemployment induces a 3 point increase in growth, is tested for many countries. In this study, this hypothesis of Okun is examined and it is found to be true for selected 23 countries, even with the difference in coefficients. At the same time, long term relation between growth and unemployment is tested with the use of time series analysis and long term relation is found for 14 countries. Additionally, tests done for all 34 OECD countries showed that reversed relation between unemployment and growth is valid and they are cointegrated in long run. In this study, countries are categorized according to growth rate as "low", "normal" and "high" and a consistent unemployment rate for countries with high growth rate could not be seen. In the case of countries with lowest growth rate, generalization that they have quite high unemployment rate can be made.

Keywords: Economic Growth, OECD Countries, Unemployment

JEL Classification: O40, O57, J64

Suggested Citation

Kargi, Bilal, Okun's Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012) (May 20, 2014). International Research Journal of Finance and Economics, Issue: 119, February 2014, pp.77-85., Available at SSRN: https://ssrn.com/abstract=2439235 or http://dx.doi.org/10.2139/ssrn.2439235

Bilal Kargi (Contact Author)

Aksaray University - Department of Banking and Finance ( email )

Aksaray Üniversitesi
Şereflikoçhisar
Aksaray, Ankara 68100
Turkey

HOME PAGE: http://bilalkargi.wix.com/bilalkargix

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