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The relationship between unemployment and economic growth: is Okun's Law valid for the Saudi Arabia case?

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  • Mouldi Ben Amor
  • Mustapha Ben Hassine

Abstract

We seek in this paper a validity of Okun's Law for Saudi Arabia over the period 1980 to 2015. Firstly, the natural unemployment rate was determined either by applying the linear regression between the observed unemployment rate and the economic growth rate or by the modified Phillips curve. Secondly, this relationship is undertaken by using the first difference and the gap model with Hodrick-Prescott (HP) filter. Using a rather new econometric approach promoted with autoregressive distributed lag, the results reveal cointegrated relationship among variables. They corroborate the Okun's Law and exhibit the relevance of causality links for economic policy decisions regarding employment. In the long-run, they indicate a significant unidirectional causality between the unemployment rate and the real output. A 1% increase in the real output for the gap (difference) model leads to a decrease in the unemployment rate by about 0.33% (0.54%), ceteris paribus.

Suggested Citation

  • Mouldi Ben Amor & Mustapha Ben Hassine, 2017. "The relationship between unemployment and economic growth: is Okun's Law valid for the Saudi Arabia case?," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 14(1), pages 44-60.
    • Handle: RePEc:ids:ijecbr:v:14:y:2017:i:1:p:44-60
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    Citations

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    Cited by:

    1. Kavese Kambale & Phiri Andrew, 2020. "A Provincial Perspective of Nonlinear Okun’s Law for Emerging Markets: The Case of South Africa," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(3), pages 59-76, September.
    2. Oliva, Leobaldo Enrique Molero & Eduardo, Salcedo Muñoz Virgilio & Vásquez, John Alexander Campuzano & Copo, Holger Fabrizzio Bejarano, 2019. "Análisis econométrico del comportamiento del desempleo en el Ecuador (segundo trimestre 2007 a cuarto trimestre 2017)," Revista Tendencias, Universidad de Narino, vol. 20(2), pages 22-48, July.
    3. Usha Devi Chuttoo, 2020. "Effect of Economic Growth on Unemployment and Validity of Okun’s Law in Mauritius," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 231-250, May.
    4. Chenini Moussa & Ayad Hicham & Attouchi Manel & Dahmani Mohamed Driouche, 2023. "Testing the Validity of Okun’s Law in Algeria: Is there a difference between Maki’s Cointegration and Quantile’s Regression Results?," Folia Oeconomica Stetinensia, Sciendo, vol. 23(1), pages 42-63, June.

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