GDP Dynamics and Unemployment Changes in Developed and Developing Countries

Posted: 11 Nov 2018

See all articles by Francesco Bartolucci

Francesco Bartolucci

Università di Perugia - Finanza e Statistica - Dipartimento di Economia

Misbah Tanveer Choudhry

Centre for Research on Economic Empowerment of South Asian Women (CREESAW)

Enrico Marelli

University of Brescia

Marcello Signorelli

University of Perugia - Department of Economics

Date Written: January 1, 2018

Abstract

We design a new specification of Okun’s model that takes the following features into account: estimation of the relation in first differences, the possible lagged effect of GDP dynamics on unemployment changes, the persistence of unemployment rate dynamics, the possible different values of Okun coefficients under recession (with respect to periods of increases in GDP), the existence of cross-country institutional and structural differences (i.e. country-specific Okun coefficients), the additional effect on unemployment caused by large adverse shocks such as financial crises. A distinctive feature of this article is its consideration of a large set of countries for which we find differentiated Okun coefficients. Moreover, we focus in particular on the distinction between developed and developing countries, and on the additional impact of financial crises. From an econometric point of view, the model developed belongs in the family of linear mixed-effects models. The estimation method uses an expectation-maximization (EM) algorithm. Our results confirm the general validity of ‘Okun’s law’; they show the Okun coefficient differences between high- and low-income countries; and they evidence an additional impact of some types of financial crisis on the unemployment dynamics of developed economies.

Keywords: Okun’s Law, GDP Dynamics, Unemployment Changes, Developed and Developing Countries, Financial Crises

JEL Classification: C23, G01, J23, J29, J69

Suggested Citation

Bartolucci, Francesco and Choudhry, Misbah Tanveer and Marelli, Enrico Piero and Signorelli, Marcello, GDP Dynamics and Unemployment Changes in Developed and Developing Countries (January 1, 2018). Applied Economics, 50(31), 3338-3356, 2018 . Available at SSRN: https://ssrn.com/abstract=3269940

Francesco Bartolucci

Università di Perugia - Finanza e Statistica - Dipartimento di Economia ( email )

06123

Misbah Tanveer Choudhry (Contact Author)

Centre for Research on Economic Empowerment of South Asian Women (CREESAW) ( email )

157-Bradley Road
Luton
London, Bedfordshire LU40AR
United Kingdom

HOME PAGE: http://www.creesaw.org

Enrico Piero Marelli

University of Brescia ( email )

Department of Economics and Management
Via San Faustino 74B
Brescia, BS 25122
Italy
0302988828 (Phone)

Marcello Signorelli

University of Perugia - Department of Economics ( email )

via Pascoli, 20
PG 06123 Perugia, 06123
Italy

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