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The Relationship between Economic Growth and Unemployment Rate: Fractional Frequency Fourier ARDL Bounds Test Approach

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  • Mustafa Orhan Özer

    (Anadolu University, Open Education Faculty, Department of Economics and Administrative Programs, Eskişehir, Turkiye)

Abstract

The present study investigates the relationship between economic growth and the unemployment rate in Turkiye. First, the stationarity of the variables is examined using the fractional frequency Fourier Augmented Dickey–Fuller unit root test in the study, which covers the quarterly time series from 2005:Q1 to 2021:Q1. The unit root test reveals that the variables are I(1) for economic growth and I(0) for the unemployment rate. Afterward, the fractional frequency Fourier autoregressive distributed lag (ARDL) bound test was used to assess the existence of the long-run relationship between the variables. The findings of the Fourier bootstrap ARDL procedure reveal a unidirectional negative relationship between economic growth and the unemployment rate in both the long and short run. A unit increase in economic growth reduces unemployment rate by 1.48 and 0.09 units in the long and short run, respectively. Finally, the fractional frequency Fourier Toda–Yamamoto causality test is used, with the results supporting the Fourier ARDL test findings.

Suggested Citation

  • Mustafa Orhan Özer, 2022. "The Relationship between Economic Growth and Unemployment Rate: Fractional Frequency Fourier ARDL Bounds Test Approach," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-1), pages 269-292, June.
    • Handle: RePEc:ist:journl:v:72:y:2022:i:1:p:269-292
    DOI: 10.26650/ISTJECON2022-1020006
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    References listed on IDEAS

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    Keywords

    Economic growth; Unemployment rate; Okun’s law JEL Classification: C32 ; E24 ; O47;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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