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Endogeneity in Okun’s law

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  • Gang Huang
  • Ho-Chuan Huang
  • Xiaojian Liu
  • Jiangang Zhang

Abstract

This article contributes to the literature of Okun’s law by addressing an under-noticed but important problem, i.e. endogeneity. By using annual variation in the international oil price weighted with countries’ average oil net-export GDP ratios as a plausibly exogenous instrumental variable for economic growth, the two-stage least squares estimates indicate that faster real GDP growth is associated with lower overall, male and female unemployment rates, confirming the validity of Okun’s law. According to our benchmark estimate, 1 percentage point increase in economic growth leads to a 0.252 percentage point decrease in civil unemployment rate.

Suggested Citation

  • Gang Huang & Ho-Chuan Huang & Xiaojian Liu & Jiangang Zhang, 2020. "Endogeneity in Okun’s law," Applied Economics Letters, Taylor & Francis Journals, vol. 27(11), pages 910-914, June.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:11:p:910-914
    DOI: 10.1080/13504851.2019.1646861
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    Cited by:

    1. Elhorst, J. Paul & Emili, Silvia, 2022. "A spatial econometric multivariate model of Okun's law," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    2. Chenini Moussa & Ayad Hicham & Attouchi Manel & Dahmani Mohamed Driouche, 2023. "Testing the Validity of Okun’s Law in Algeria: Is there a difference between Maki’s Cointegration and Quantile’s Regression Results?," Folia Oeconomica Stetinensia, Sciendo, vol. 23(1), pages 42-63, June.

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