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The Impact of GDP Structure on the Stability of Okun's Law in Lithuania

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  • Pesliakaite, Jurgita

Abstract

This paper provides evidence that the extent to which unemployment rate in Lithuania reacts to the fluctuations in GDP depends on the compositional characteristics of GDP growth. Decomposing GDP growth rate by expenditure approach and estimating simple version of Okun’s law, the evidence provided in this paper points towards the conclusion that the GDP growth driven by labour-intense private consumption contributes the most to a change in the unemployment rate. The elasticity of the unemployment rate to capital-intense exports is generally much lower as compared to the elasticity to the domestic demand components. These conclusions are to a large extent confirmed by the estimates obtained by regressing unemployment on GDP growth disaggregated by production approach. Services, agriculture and especially construction – labour-intense production sectors – contribute much more to change in unemployment as compared to manufacturing, the sector characterised by capital-intensity. Referring to the previous studies, these results provide one possible explanation of the unstable and time-varying relationship between the unemployment rate and fluctuations in GDP in Lithuania.

Suggested Citation

  • Pesliakaite, Jurgita, 2015. "The Impact of GDP Structure on the Stability of Okun's Law in Lithuania," MPRA Paper 69190, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:69190
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    File URL: https://mpra.ub.uni-muenchen.de/69190/1/MPRA_paper_69190.pdf
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    References listed on IDEAS

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    1. Anderton, Robert & Tewolde, Tadios, 2011. "The global financial crisis: trying to understand the global trade downturn and recovery," Working Paper Series 1370, European Central Bank.
    2. Leopold Sogner & Alfred Stiassny, 2002. "An analysis on the structural stability of Okun's law--a cross-country study," Applied Economics, Taylor & Francis Journals, vol. 34(14), pages 1775-1787.
    3. Mary C. Daly & Bart Hobijn, 2010. "Okun’s law and the unemployment surprise of 2009," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar8.
    4. Robert Anderton & Tadios Tewolde, 2011. "The Global Financial Crisis: Understanding the Global Trade Downturn and Recovery," The World Economy, Wiley Blackwell, vol. 34, pages 741-763, May.
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    Cited by:

    1. Özge BARIŞ-TÜZEMEN & Samet TÜZEMEN, 2019. "The Relationship between Unemployment and Growth: Evidence from Turkish Manufacturing Industry," Sosyoekonomi Journal, Sosyoekonomi Society.

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    More about this item

    Keywords

    unemployment; GDP; Okun’s law; Lithuania;
    All these keywords.

    JEL classification:

    • J00 - Labor and Demographic Economics - - General - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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