Output and Unemployment Relationship: How Applicable Is the Okun's Law to Nigeria
12 Pages Posted: 23 Oct 2014
Date Written: 2012
The objective of this article is to investigate the existence of an Okun-type relationship for the Nigerian economy during the period 1970-2009. After a unit root check was carried out using the Augment Dickey Fuller and Philip Perron tests, using the cointegration technique, we find that a long run inverse relationship exists between unemployment and output in Nigeria. The Okun coefficient was 1.75 percent indicating that a one percent decrease in unemployment rate is accompanied by a 1.75 percent increase in GDP. The coefficient in Okun’s original work was 3 percent, which is greater than the coefficient found in this study. This study supports the argument that the slope coefficient in the Okun’s model is unstable, hence, it varies across economies and periods. Employment generation programmes and policies towards reducing the level of unemployment in Nigeria may thus significantly impact on the level of output on an increasing scale.
Keywords: Okun’s Law, Output, Unemployment, Cointegration, Nigera
JEL Classification: C12, C22, E24
Suggested Citation: Suggested Citation