IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i4p3088-d1061784.html
   My bibliography  Save this article

Sustainable Employment in Developing and Emerging Countries: Testing Augmented Okun’s Law in Light of Institutional Quality

Author

Listed:
  • Asma Raies

    (College of Business, Umm Al-Qura University, Mecca 24382, Saudi Arabia)

Abstract

This article is motivated by the recent debate raised on Okun’s Law regarding the divergence of the magnitude of Okun’s coefficient across countries and time horizons, its asymmetry and non-linearity, and the methodological issues associated with the estimate of this law. We tested the proposition that institutional quality—as measured by governance indicators—can explain this divergence and non-linearity. We estimated an augmented version of Okun’s Law showing the non-linear responsiveness of unemployment to fluctuations in GDP in the presence of institutional quality in a sample of 88 developing and emerging countries over the 1985–2019 period. Estimates are run using the 3sls regressor. We found evidence confirming that the responsiveness of unemployment to changes in output is all the more remarkable in countries with stronger institutions. We show that improving the institutional environment—as proxied by Government Effectiveness (GE), Control of Corruption (CC), Regulatory Quality (RQ), the Rule of Law (RL), and Voice and Accountability (VA)—is as important as increased economic growth in the strategy of reducing unemployment and reaching full employment in these countries, which is one of the 17 Sustainable Development Goals (SDGs) issued by the United Nations.

Suggested Citation

  • Asma Raies, 2023. "Sustainable Employment in Developing and Emerging Countries: Testing Augmented Okun’s Law in Light of Institutional Quality," Sustainability, MDPI, vol. 15(4), pages 1-13, February.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:4:p:3088-:d:1061784
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/4/3088/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/4/3088/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Matiur Rahman & Muhammad Mustafa, 2017. "Okun’s law: evidence of 13 selected developed countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 297-310, April.
    2. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    3. Benos, Nikos & Stavrakoudis, Athanassios, 2022. "Okun's law: Copula-based evidence from G7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 478-491.
    4. Lee, Jim, 2000. "The Robustness of Okun's Law: Evidence from OECD Countries," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 331-356, April.
    5. Andrew Phiri, 2014. "Nonlinear Co-Integration Between Unemployment and Economic Growth in South Africa," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 12(4 (Winter), pages 303-324.
    6. Luis A. Gil-Alana & Marinko Skare & Sanja Blazevic Buric, 2020. "Testing Okun’s law. Theoretical and empirical considerations using fractional integration," Applied Economics, Taylor & Francis Journals, vol. 52(5), pages 459-474, January.
    7. Laurence M. Ball & Daniel Leigh & Prakash Loungani, 2013. "Okun's Law: Fit at Fifty?," NBER Working Papers 18668, National Bureau of Economic Research, Inc.
    8. N. Gregory Mankiw & David Romer & David Weil, 1990. "A Contribution to the Empirics of Economic Growth," Working Papers 1990-24, Brown University, Department of Economics.
    9. Huang, Ho-Chuan (River) & Lin, Shu-Chin, 2008. "Smooth-time-varying Okun's coefficients," Economic Modelling, Elsevier, vol. 25(2), pages 363-375, March.
    10. Xiuhua Wang & Ho-Chuan Huang, 2017. "Okun’s law revisited: a threshold in regression quantiles approach," Applied Economics Letters, Taylor & Francis Journals, vol. 24(21), pages 1533-1541, December.
    11. Myeong Jun Kim & Sung Y. Park & Sang Young Jei, 2015. "An empirical test for Okun's law using a smooth time-varying parameter approach: evidence from East Asian countries," Applied Economics Letters, Taylor & Francis Journals, vol. 22(10), pages 788-795, July.
    12. Laurence Ball & Davide Furceri & Daniel Leigh & Prakash Loungani, 2019. "Does One Law Fit All? Cross-Country Evidence on Okun’s Law," Open Economies Review, Springer, vol. 30(5), pages 841-874, November.
    13. El Andari, Chifaa & Bouaziz, Rached, 2015. "Is the Okun's law valid in Tunisia?," MPRA Paper 67998, University Library of Munich, Germany, revised 19 Nov 2015.
    14. Thomas Obst, 2022. "Dynamic version of Okun’s law in the EU15 countries—The role of delays in the unemployment‐output nexus," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(2), pages 225-241, May.
    15. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    16. Moosa, Imad A., 1997. "A Cross-Country Comparison of Okun's Coefficient," Journal of Comparative Economics, Elsevier, vol. 24(3), pages 335-356, June.
    17. Francesco Bartolucci & Misbah T. Choudhry & Enrico Marelli & Marcello Signorelli, 2018. "GDP dynamics and unemployment changes in developed and developing countries," Applied Economics, Taylor & Francis Journals, vol. 50(31), pages 3338-3356, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Porras-Arena, M. Sylvina & Martín-Román, Ángel L., 2023. "The heterogeneity of Okun's law: A metaregression analysis," Economic Modelling, Elsevier, vol. 128(C).
    2. Grant, Angelia L., 2018. "The Great Recession and Okun's law," Economic Modelling, Elsevier, vol. 69(C), pages 291-300.
    3. Shabir Mohsin Hashmi & Ali Gul Khushik & Muhammad Akram Gilal & Zhao Yongliang, 2021. "The Impact of GDP and Its Expenditure Components on Unemployment Within BRICS Countries: Evidence of Okun’s Law From Aggregate and Disaggregated Approaches," SAGE Open, , vol. 11(2), pages 21582440211, June.
    4. Durech, Richard & Minea, Alexandru & Mustea, Lavinia & Slusna, Lubica, 2014. "Regional evidence on Okun's Law in Czech Republic and Slovakia," Economic Modelling, Elsevier, vol. 42(C), pages 57-65.
    5. Antal, Miklós, 2014. "Green goals and full employment: Are they compatible?," Ecological Economics, Elsevier, vol. 107(C), pages 276-286.
    6. Rao, B. Bhaskara, 2010. "Estimates of the steady state growth rates for selected Asian countries with an extended Solow model," Economic Modelling, Elsevier, vol. 27(1), pages 46-53, January.
    7. Erich Gundlach, 2003. "Growth Effects of EU Membership: The Case of East Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 30(3), pages 237-270, September.
    8. Kutuk, Yasin, 2022. "Inequality convergence: A world-systems theory approach," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 150-165.
    9. Kar, Sabyasachi & Pritchett, Lant & Raihan, Selim & Sen, Kunal, 2013. "Looking for a break: Identifying transitions in growth regimes," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 151-166.
    10. Kieran McQuinn & Karl Whelan, 2007. "Solow ( 1956 ) as a model of cross-country growth dynamics," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 23(1), pages 45-62, Spring.
    11. van de Klundert, T.C.M.J. & Smulders, J.A., 1991. "Reconstructing growth theory : A survey," Other publications TiSEM 19355c51-17eb-4d5d-aa66-b, Tilburg University, School of Economics and Management.
    12. Tung Liu & Kui-Wai Li, 2008. "Revisiting Solow’s Decomposition of Economic and Productivity Growth," Working Papers 200805, Ball State University, Department of Economics, revised Dec 2008.
    13. Vos, Rob & Frenkel, Roberto & Ocampo, José Antonio & Palma, José Gabriel & Marfán, Manuel & Ros, Jaime & Taylor, Lance & Correa, Nelson & Cimoli, Mario, 2005. "Beyond Reforms: Structural Dynamics and Macroeconomic Vulnerability," IDB Publications (Books), Inter-American Development Bank, number 347.
    14. Kevin S. Nell & Maria M. De Mello, 2019. "The interdependence between the saving rate and technology across regimes: evidence from South Africa," Empirical Economics, Springer, vol. 56(1), pages 269-300, January.
    15. Roberto Martino & Phu Nguyen-Van, 2014. "Labour market regulation and fiscal parameters: A structural model for European regions," Working Papers of BETA 2014-19, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    16. Jonas Kibala Kuma, 2020. "Solow model and convergence's equation : mathematical processing [Dérivation des équations de convergence dans le modèle de Solow : démarche mathématique]," Working Papers hal-02424875, HAL.
    17. Sodiq Arogundade & Mduduzi Biyase & Hinaunye Eita, 2021. "Foreign Direct Investment and Inclusive Human Development in Sub-Saharan African Countries:Does local Economic Conditions Matter?," Economic Development and Well-being Research Group Working Paper Series edwrg-01-2021, University of Johannesburg, College of Business and Economics, revised 2021.
    18. Flora Pandya & Suresh Maind, 2017. "Panel data analysis: convergence of Indian states with infrastructure," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 19(1), pages 181-195, April.
    19. Hasa, Zubair, 2014. "Islamic finance: Debt versus equity - An empirical Issue," MPRA Paper 58891, University Library of Munich, Germany.
    20. Baharumshah, Ahmad Zubaidi & Slesman, Ly & Wohar, Mark E., 2016. "Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence," Economic Systems, Elsevier, vol. 40(4), pages 638-657.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:4:p:3088-:d:1061784. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.