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Testing Okun’s law in South Africa

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  • Stungwa, Sanele
  • Tozamile, Siphuxolo

Abstract

The objective of this study is to test the existence of Okun’s coefficient in South Africa. The study used an annual data spanning from 1995 to 2020. The study employed error correction model(ECM) which tests a short run relationship between the variables under the study. The granger causality test is also applied the check the short run causal relationship between the variables. The findings of the study show that there is a negative and significant relationship between unemployment and gross domestic product in the short run. Therefore, Okun’s Law exists in South Africa. The results from granger causality test show that GDP granger cause unemployment in South Africa. Therefore, the study suggests that policymaker should focus on balancing labour intensive and capital-intensive jobs, and also to encourage entrepreneurship and proper education and training.

Suggested Citation

  • Stungwa, Sanele & Tozamile, Siphuxolo, 2021. "Testing Okun’s law in South Africa," MPRA Paper 110936, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110936
    as

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    File URL: https://mpra.ub.uni-muenchen.de/110936/1/MPRA_paper_110936.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Gross domestic product; unemployment rate; Okun’s coefficient; South Africa;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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