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The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis

Year 2024, Volume: 11 Issue: 1, 76 - 85, 16.02.2024

Mustafa Şit

https://doi.org/10.26650/JEPR1232910

Abstract

This study aims to estimate the minimum rate of economic growth required to reduce unemployment in the large emerging markets economies of the Fragile Five (i.e., Brazil, India, Russia, South Africa, and Türkiye). As proposed by Hansen (1999), the study conducts a panel threshold analysis based on Okun’s law to determine threshold effects. This paper presents new evidence regarding Okun’s law over the past three decades for five large emerging markets. The findings suggest the relationship between the cyclical components of unemployment and GDP growth to be characterized by non-linearities. In particular, unemployment will fall if economic growth exceeds an average threshold of 5.5%. This result proves the validity of Okun’s Law regarding the threshold for the country group under investigation. This study has also proven that economic growth must exceed a certain level in order to reduce the unemployment rate in these economies. Policymakers in the Fragile Five should consider a minumum of 5.50% as an economic growth target to provide employment. When considering the unstable economic performance of the Fragile Five’s economies, structural reforms should be made to ensure adequate economic growth and increase employment. To address the problem of poor growth, this study can propose economic measures such as reducing employment taxes, producing investment and employment-based policies, and increasing the effectiveness of private employment offices.

JEL Classification : C23 , E24 , O11

Keywords

Okun’s law Nonlinearities and asymmetries Panel threshold model the Fragile five Economic growth

References

  • Altig, D., Fitzgerald, T. & Rupert, P. (1997). Okun’s law revisited: Should we worry about low unemployment. Federal Reserve Bank of ClevelandEconomic Commentary. google scholar
  • Attfield, C. L. & Silverstone, B. (1997). Okun’s coefficient: a comment. Review of economics and statistics, 79 (2), 326-329. google scholar
  • Aydin, C. & Esen, Ö. (2017). Inflationary Threshold Effects on the Relationship between Unemployment and Economic Growth: Evidence from Turkey. International journal of economic perspectives, 11 (2), 88-97. google scholar
  • Azorin, J. D. B. (2017). Output growth thresholds for the creation of employment and the reduction of unemployment: A spatial analysis with panel data from the Spanish provinces, 2000-2011. Regional Science and Urban Economics, 67, 42-49. google scholar
  • Baltagi, B. H. (2013). Econometric Analysis of Panel Data (Fifth Edition). West Sussex: John Wiley and Sons. google scholar
  • Blazquez-Fernandez, C., Cantarero-Prieto, D. & Pascual-Saez, M. (2018). Okun’s Law in Selected European Countries (2005-2017): An Age and Gender Analysis. Economics and Sociology, 11 (2). google scholar
  • Bod’a, M. & Povazanova, M. (2021). Output-unemployment asymmetry in Okun coefficients for OECD countries. Economic Analysis and Policy, 69, 307-323. google scholar
  • Butkus, M. & Seputiene, J., 2019. The output gap and youth unemployment: An analysis based on Okun’s law. Economies, 7 (108). google scholar
  • Caraiani, P. (2006a). The relationship between unemployment and output cycles in Korea. Romanian Journal of Economic Forecasting, 1, 51-64. google scholar
  • Caraiani, P. (2006b). Alternative methods of estimating the Okun coefficient. Applications for Romania. Romanian Journal of Economic Forecasting, 7 (4), 82-89. google scholar
  • Chan K.S. (1993). Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model. The Annals of Statistics, 21, 520-533 google scholar
  • Courtney, H.G. (1991). The Beveridge Curve and Okun’s Law: A Re-Examination of Fundamental Relationships in the United States, Ph.D. thesis, Massachusetts Institute of Technology. google scholar
  • Daly, M. C., G. Fernald, Ö Jorda, & F. Nechio (2012). Okun’s Macroscope: Output and Employment after the Great Recession, Manuscript, Federal Reserve Bank of San Francisco. google scholar
  • Dunsch, S. (2017). Age- and gender-specific unemployment and Okun’s law in CEE countries. East. Eur. Econ., 55, 377-393. google scholar
  • Flaig, G., & Rottmann, H. (2001). Input Demand and the Short-and Long-Run Employment Thresholds: An Empirical Analysis for the German Manufacturing Sector. German Economic Review, 2 (4), 367-384. google scholar
  • Fouquau, J. (2008). Threshold effects in Okun’s law: a panel data analysis. Economics Bulletin, 5, pp-1-15. google scholar
  • Friedman, B. M. (1988). Lessons on Monetary Policy from the 1980s. Journal of Economic Perspectives, 2, 51-72. google scholar
  • GaH, J., Smets, F. & Wouters, R. (2012). Slow recoveries: A structural interpretation. Journal ofMoney, Credit and Banking, 44, 9-30. google scholar
  • Gordon, Robert J. (1998). Macroeconomics. New York: Harper Collins. google scholar
  • Göçer, İ. (2015). Okun yasası: Türkiye üzerine bir uygulama. Uluslararası Ekonomik Araştırmalar Dergisi, 1 (1). google scholar
  • Hansen, B. E. (1999). Threshold Effects in Non-Dynamic Panels: Estimation, Testing, And Inference. Journal of Econometrics, 93, 345-368. google scholar
  • Harris, R. & Silverstone, B. (2001). Testing for asymmetry in Okun’s law: A cross-country comparison. Economics bulletin, 5 (2), 1-13. google scholar
  • Hsing, Y. (1991). Unemployment and the GNP gap: Okun’s Law Revisited. Eastern Economic Journal, 17 (4), 409-416. google scholar
  • Huang, H. C. & Chang, Y. K. (2005). Investigating Okun’s law by the structural break with threshold approach: Evidence from Canada. The Manchester School, 73(5), 599-611. google scholar
  • Hutengs, O. & Stadtmann, G. (2014). Age-and gender-specific unemployment in Scandinavian countries: An analysis based on Okun’s law. Comparative Economic Studies, 56 (4), 567-580. google scholar
  • Im, K.S., Peseran M.H. & Shin Y. (2003). Testing for Unitroots in Heterogeneous Panels. Journal of Econometrics, 115 (1), 53-74 google scholar
  • Jardin, M. & Gaetan, S. (2012). How Okun’s law is non-linear in Europe: a semi-parametric approach. Rennes, University ofRennes, 16th annual conference on macroeconomic analysis and international finance, April 2012 google scholar
  • Jula, D. & Jula, N. M. (2013). Economic growth and structural changes in regional employment. Romanian Journal of Economic Forecasting, 16 (2), 52-69. google scholar
  • Kosfeld, R. & Dreger, C. (2006). Thresholds for employment and unemployment: A spatial analysis of German regional labour markets, 1992-2000. Papers in Regional Science, 85 (4), 523-542. google scholar
  • Lee, J. (2000). The robustness of Okun’s law: Evidence from OECD countries. Journal of macroeconomics, 22 (2), 331-356. google scholar
  • Levin, A., Lin C.F. & Chu C.S.J. (2002). Unitroot Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108 (1), 1-24. google scholar
  • Mankiw, N. G. (1994). Macroeconomics. New York: Worth Publishers. google scholar
  • Marconi, G., Beblavy, M. & Maselli, I. (2016). Age effects in Okun’s law with different indicators of unemployment. Appl. Econ. Lett., 23, 580-583. google scholar
  • McKinsey Global Institute (2011). An Economy That Works: Job Creation and America’s Future, June 2011 report. google scholar
  • Meyer, B. & Tasci, M. (2012). An unstable Okun’s Law, not the best rule of thumb. Economic Commentary, June 7. google scholar
  • Owyang, M T., & T. Sekhposyan. (2012). Okun’s law over the business cycle: was the great recession all that different? Federal Reserve Bank of St. Louis Review, 94 (5), 399-418. google scholar
  • Palley, T.I. (1993). Okun’s Law and the Asymmetric and Changing Cyclical Behaviour of the USA Economy. International Review of Applied Economics, 7, 144-62. google scholar
  • Phiri, A. (2014). Nonlinear co-integration between unemployment and economic growth in South Africa. Managing Global Transitions, 12 (2), 81-102. google scholar
  • Prachowny, M. F. J. (1993). Okun’s Law: Theoretical Foundations and Revised Estimates. Review of Economics and Statistics, 75, 331-336. google scholar
  • Sheehan, Richard G., and Frank Zahn. (1980). The Variability of the Okun Coefficient. Southern Economic Journal, 47, 488-97. google scholar
  • Stanley, M. (2013). FX Pulse. Accessed August 01 2013. https://www.morganstanley.com/institutional/research/pdf/FXPulse_20130801.pdf google scholar
  • Vinayagathasan, T. (2013). Inflation and economic growth: A dynamic panel threshold analysis for Asian economies. Journal of Asian Economics, 26, 31-41. google scholar
  • Viren, M. (2001). The okun curve is non-linear. Economies letters, 70, 253-257. google scholar Wang, X. & Huang, H. C. (2017). Okun’s law revisited: a threshold in regression quantiles approach. Applied Economics Letters, 24 (21), 1533-1541. google scholar
  • Weber, C. (1995). Cyclical output, cyclical unemployment, and Okun’s coefficient: a new approach. Journal of Applied Econometrics, 10, 433-446. google scholar
  • Worldbank Database, (2019). PWT 9.0 Datas, https://data.worldbank.org/ google scholar

Seçilmiş Gelişmekte Olan Büyük Ülkelerde İşsizlik ve Ekonomik Büyüme Arasındaki İlişki: Eşik Regresyon Analizi Kullanılarak Yeniden Bir İnceleme

Year 2024, Volume: 11 Issue: 1, 76 - 85, 16.02.2024

Mustafa Şit

https://doi.org/10.26650/JEPR1232910

Abstract

Bu çalışma, Kırılgan Beşlinin gelişmekte olan büyük ekonomilerinde (Brezilya, Hindistan, Rusya, Güney Afrika ve Türkiye) işsizliği azaltmak için gereken minimum ekonomik büyüme oranını tahmin etmeyi amaçlamaktadır. Çalışmada Hansen (1999) tarafından önerildiği gibi eşik etkilerini belirlemek için Okun kanununu temel alan bir panel eşik analizi yapılmaktadır. Bu makale, gelişmekte olan beş büyük pazar için son otuz yılda Okun yasasına ilişkin yeni kanıtlar sunmaktadır. Bulgular, işsizliğin döngüsel bileşenleri ile GSYİH büyümesi arasındaki ilişkinin doğrusal olmama durumuyla tanımlanabileceğini öne sürüyor. Özellikle ekonomik büyüme ortalama %5,5 eşiğini aşarsa işsizlik azalacaktır. Bu sonuç, incelenen ülke grubu için eşik değere ilişkin Okun Yasasının geçerliliğini kanıtlamaktadır. Kırılgan Beşli’deki politika yapıcılar, istihdam sağlamak için en az %5,50’yi ekonomik büyüme hedefi olarak görmelidir. Kırılgan Beşli ekonomilerinin istikrarsız ekonomik performansı göz önüne alındığında, yeterli ekonomik büyümeyi sağlamak ve istihdamı artırmak için yapısal reformlar yapılmalıdır. Zayıf büyüme sorununu ele almak için bu çalışma, istihdam vergilerinin düşürülmesi, yatırım ve istihdama dayalı politikalar üretilmesi ve özel istihdam bürolarının etkinliğinin artırılması gibi ekonomik önlemler önerebilir.

Jel Sınıflaması: C23, E24, O11

Keywords

Okun yasası Nonlineer ve asimetriler Panel eşik modeli Kırılgan beşli Ekonomik büyüme

References

  • Altig, D., Fitzgerald, T. & Rupert, P. (1997). Okun’s law revisited: Should we worry about low unemployment. Federal Reserve Bank of ClevelandEconomic Commentary. google scholar
  • Attfield, C. L. & Silverstone, B. (1997). Okun’s coefficient: a comment. Review of economics and statistics, 79 (2), 326-329. google scholar
  • Aydin, C. & Esen, Ö. (2017). Inflationary Threshold Effects on the Relationship between Unemployment and Economic Growth: Evidence from Turkey. International journal of economic perspectives, 11 (2), 88-97. google scholar
  • Azorin, J. D. B. (2017). Output growth thresholds for the creation of employment and the reduction of unemployment: A spatial analysis with panel data from the Spanish provinces, 2000-2011. Regional Science and Urban Economics, 67, 42-49. google scholar
  • Baltagi, B. H. (2013). Econometric Analysis of Panel Data (Fifth Edition). West Sussex: John Wiley and Sons. google scholar
  • Blazquez-Fernandez, C., Cantarero-Prieto, D. & Pascual-Saez, M. (2018). Okun’s Law in Selected European Countries (2005-2017): An Age and Gender Analysis. Economics and Sociology, 11 (2). google scholar
  • Bod’a, M. & Povazanova, M. (2021). Output-unemployment asymmetry in Okun coefficients for OECD countries. Economic Analysis and Policy, 69, 307-323. google scholar
  • Butkus, M. & Seputiene, J., 2019. The output gap and youth unemployment: An analysis based on Okun’s law. Economies, 7 (108). google scholar
  • Caraiani, P. (2006a). The relationship between unemployment and output cycles in Korea. Romanian Journal of Economic Forecasting, 1, 51-64. google scholar
  • Caraiani, P. (2006b). Alternative methods of estimating the Okun coefficient. Applications for Romania. Romanian Journal of Economic Forecasting, 7 (4), 82-89. google scholar
  • Chan K.S. (1993). Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model. The Annals of Statistics, 21, 520-533 google scholar
  • Courtney, H.G. (1991). The Beveridge Curve and Okun’s Law: A Re-Examination of Fundamental Relationships in the United States, Ph.D. thesis, Massachusetts Institute of Technology. google scholar
  • Daly, M. C., G. Fernald, Ö Jorda, & F. Nechio (2012). Okun’s Macroscope: Output and Employment after the Great Recession, Manuscript, Federal Reserve Bank of San Francisco. google scholar
  • Dunsch, S. (2017). Age- and gender-specific unemployment and Okun’s law in CEE countries. East. Eur. Econ., 55, 377-393. google scholar
  • Flaig, G., & Rottmann, H. (2001). Input Demand and the Short-and Long-Run Employment Thresholds: An Empirical Analysis for the German Manufacturing Sector. German Economic Review, 2 (4), 367-384. google scholar
  • Fouquau, J. (2008). Threshold effects in Okun’s law: a panel data analysis. Economics Bulletin, 5, pp-1-15. google scholar
  • Friedman, B. M. (1988). Lessons on Monetary Policy from the 1980s. Journal of Economic Perspectives, 2, 51-72. google scholar
  • GaH, J., Smets, F. & Wouters, R. (2012). Slow recoveries: A structural interpretation. Journal ofMoney, Credit and Banking, 44, 9-30. google scholar
  • Gordon, Robert J. (1998). Macroeconomics. New York: Harper Collins. google scholar
  • Göçer, İ. (2015). Okun yasası: Türkiye üzerine bir uygulama. Uluslararası Ekonomik Araştırmalar Dergisi, 1 (1). google scholar
  • Hansen, B. E. (1999). Threshold Effects in Non-Dynamic Panels: Estimation, Testing, And Inference. Journal of Econometrics, 93, 345-368. google scholar
  • Harris, R. & Silverstone, B. (2001). Testing for asymmetry in Okun’s law: A cross-country comparison. Economics bulletin, 5 (2), 1-13. google scholar
  • Hsing, Y. (1991). Unemployment and the GNP gap: Okun’s Law Revisited. Eastern Economic Journal, 17 (4), 409-416. google scholar
  • Huang, H. C. & Chang, Y. K. (2005). Investigating Okun’s law by the structural break with threshold approach: Evidence from Canada. The Manchester School, 73(5), 599-611. google scholar
  • Hutengs, O. & Stadtmann, G. (2014). Age-and gender-specific unemployment in Scandinavian countries: An analysis based on Okun’s law. Comparative Economic Studies, 56 (4), 567-580. google scholar
  • Im, K.S., Peseran M.H. & Shin Y. (2003). Testing for Unitroots in Heterogeneous Panels. Journal of Econometrics, 115 (1), 53-74 google scholar
  • Jardin, M. & Gaetan, S. (2012). How Okun’s law is non-linear in Europe: a semi-parametric approach. Rennes, University ofRennes, 16th annual conference on macroeconomic analysis and international finance, April 2012 google scholar
  • Jula, D. & Jula, N. M. (2013). Economic growth and structural changes in regional employment. Romanian Journal of Economic Forecasting, 16 (2), 52-69. google scholar
  • Kosfeld, R. & Dreger, C. (2006). Thresholds for employment and unemployment: A spatial analysis of German regional labour markets, 1992-2000. Papers in Regional Science, 85 (4), 523-542. google scholar
  • Lee, J. (2000). The robustness of Okun’s law: Evidence from OECD countries. Journal of macroeconomics, 22 (2), 331-356. google scholar
  • Levin, A., Lin C.F. & Chu C.S.J. (2002). Unitroot Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108 (1), 1-24. google scholar
  • Mankiw, N. G. (1994). Macroeconomics. New York: Worth Publishers. google scholar
  • Marconi, G., Beblavy, M. & Maselli, I. (2016). Age effects in Okun’s law with different indicators of unemployment. Appl. Econ. Lett., 23, 580-583. google scholar
  • McKinsey Global Institute (2011). An Economy That Works: Job Creation and America’s Future, June 2011 report. google scholar
  • Meyer, B. & Tasci, M. (2012). An unstable Okun’s Law, not the best rule of thumb. Economic Commentary, June 7. google scholar
  • Owyang, M T., & T. Sekhposyan. (2012). Okun’s law over the business cycle: was the great recession all that different? Federal Reserve Bank of St. Louis Review, 94 (5), 399-418. google scholar
  • Palley, T.I. (1993). Okun’s Law and the Asymmetric and Changing Cyclical Behaviour of the USA Economy. International Review of Applied Economics, 7, 144-62. google scholar
  • Phiri, A. (2014). Nonlinear co-integration between unemployment and economic growth in South Africa. Managing Global Transitions, 12 (2), 81-102. google scholar
  • Prachowny, M. F. J. (1993). Okun’s Law: Theoretical Foundations and Revised Estimates. Review of Economics and Statistics, 75, 331-336. google scholar
  • Sheehan, Richard G., and Frank Zahn. (1980). The Variability of the Okun Coefficient. Southern Economic Journal, 47, 488-97. google scholar
  • Stanley, M. (2013). FX Pulse. Accessed August 01 2013. https://www.morganstanley.com/institutional/research/pdf/FXPulse_20130801.pdf google scholar
  • Vinayagathasan, T. (2013). Inflation and economic growth: A dynamic panel threshold analysis for Asian economies. Journal of Asian Economics, 26, 31-41. google scholar
  • Viren, M. (2001). The okun curve is non-linear. Economies letters, 70, 253-257. google scholar Wang, X. & Huang, H. C. (2017). Okun’s law revisited: a threshold in regression quantiles approach. Applied Economics Letters, 24 (21), 1533-1541. google scholar
  • Weber, C. (1995). Cyclical output, cyclical unemployment, and Okun’s coefficient: a new approach. Journal of Applied Econometrics, 10, 433-446. google scholar
  • Worldbank Database, (2019). PWT 9.0 Datas, https://data.worldbank.org/ google scholar
There are 45 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section RESEARCH ARTICLE
Authors

Mustafa Şit 0000-0001-9694-0547

Publication Date February 16, 2024
Submission Date January 11, 2023
Published in Issue Year 2024 Volume: 11 Issue: 1

Cite

APA Şit, M. (2024). The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis. Journal of Economic Policy Researches, 11(1), 76-85. https://doi.org/10.26650/JEPR1232910
AMA Şit M. The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis. JEPR. February 2024;11(1):76-85. doi:10.26650/JEPR1232910
Chicago Şit, Mustafa. “The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis”. Journal of Economic Policy Researches 11, no. 1 (February 2024): 76-85. https://doi.org/10.26650/JEPR1232910.
EndNote Şit M (February 1, 2024) The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis. Journal of Economic Policy Researches 11 1 76–85.
IEEE M. Şit, “The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis”, JEPR, vol. 11, no. 1, pp. 76–85, 2024, doi: 10.26650/JEPR1232910.
ISNAD Şit, Mustafa. “The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis”. Journal of Economic Policy Researches 11/1 (February 2024), 76-85. https://doi.org/10.26650/JEPR1232910.
JAMA Şit M. The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis. JEPR. 2024;11:76–85.
MLA Şit, Mustafa. “The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis”. Journal of Economic Policy Researches, vol. 11, no. 1, 2024, pp. 76-85, doi:10.26650/JEPR1232910.
Vancouver Şit M. The Relationship Between Unemployment and Economic Growth in Selected Large Emerging Countries: A Revisit Using Threshold Regression Analysis. JEPR. 2024;11(1):76-85.
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