Revisit of Okun's law case of Tunisia, Egypt, Morocco, Lebanon, Jordan and Oman

Abstract

PurposeIn this paper, the author aims to investigate the relationship between economic growth and unemployment in six Arab countries from Middle East and North Africa (MENA) zone including Tunisia, Egypt, Morocco, Lebanon, Jordan and Oman through the implementation of Okun's law using quarterly dataset covering the time period 2000: 1–2014: 4.Design/methodology/approachIn this paper, static and dynamic linear and nonlinear models are used to test the linkage between cyclical unemployment and cyclical growth rate.FindingsThe empirical results from considered models confirm an inverse linkage between unemployment rate and economic growth, as the Okun's law suggests (except for Oman). In a nonlinear autoregressive dynamic linear (NARDL) framework and gap specification, statistically significant Okun's coefficients indicate that output growth can be translated into employment gains. Absolute effect of an economic contraction is significantly larger than that of an expansion in Tunisia, Egypt, Morocco and Lebanon. The opposite is true for Jordan and Oman.Practical implicationsEmpirical finding provides then an additional proof that Okun's law could exist in a developing countries such as Tunisia, Egypt, Morocco, Lebanon and Jordan. Hence, any attempt to increase gross domestic product (GDP) through some economic fiscal and/or monetary policies in these countries would reduce unemployment rate.Originality/valueBased on asymmetric specification, the author can conclude with precision that an economic upturn of 3.37, 2.98 and 2.5%, respectively, in Tunisia, Morocco and Egypt reduces unemployment by 1%, whilst the downturn of 5.03 and 2.43% (and about 12%), respectively, in Tunisia and Morocco (and Lebanon and Jordan) achieves the opposite.