Econometric estimation of the relationship between the unemployment rate and economic growth in Limpopo province, South Africa

This study aims to empirically estimate the relationship between economic growth and the unemployment rate in the Limpopo Province of South Africa. The analysis used quarterly data covering the 2008–2018 period, which was obtained from Statistics South Africa. For data analysis, the study employed the difference model, the dynamic model and the Granger causality test to consider the potential short term and long term relationships. Based on the difference model estimation, the Okun’s coefficient was determined to be -0.22. The Granger causality test showed that a causal relationship between these two variables does not exist, which means that a change in the growth rate of the real Gross Domestic Product (GDP) does not cause a change in the rate of unemployment and vice-versa. The impossibility of applying Okun’s law indicates that a cyclical recovery will not be accompanied by a decrease in unemployment. Furthermore, this might reflect the sizable structural and/or frictional component of unemployment in the Limpopo Province. Lastly, South Africa’s economic policies have not been suitable for fostering development that can reduce unemployment and this could be due to an improper structure of the public and private sectors.