Output and Unemployment Relationship: How Applicable Is the Okun's Law to Nigeria

12 Pages Posted: 23 Oct 2014

Date Written: 2012

Abstract

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

Ola-David, Oluyomi and Oluwatobi, Stephen, Output and Unemployment Relationship: How Applicable Is the Okun's Law to Nigeria (2012). Available at SSRN: https://ssrn.com/abstract=2512898 or http://dx.doi.org/10.2139/ssrn.2512898

Oluyomi Ola-David (Contact Author)

Covenant University ( email )

Canaanland
Km 10 Idiroko road
Ota, 24001
Nigeria

Stephen Oluwatobi

Covenant University ( email )

P.M.B. 1023
Km 10 Idiroko road
Ota, Ogun State 234
Nigeria

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