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Effect of Economic Growth on Unemployment and Validity of Okun’s Law in Mauritius

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  • Usha Devi Chuttoo

Abstract

This study examines the relationship between unemployment and economic growth in Mauritius. The methodology adopted for this study is the autoregressive distributed lag (ARDL) bounds cointegration test, ARDL error-correction model (ARDL-ECM) using the ordinary least square (OLS) approach and Okun’s law-gap version. ARDL-ECM estimates the long-run and short-run relationship between economic growth and unemployment. The validity of Okun’s law is tested in the Mauritian context and Okun’s coefficient is thereby estimated. The results obtained from the tests show that both in the long run and short run, there is a negative cointegration between economic growth and unemployment, but it is not statistically significant. Whereas, the result of Okun’s law-gap version shows that Okun’s law is indeed valid in the small economy of Mauritius. From the Okun’s coefficient obtained, it is concluded that 4 percent change in gross domestic product (GDP) growth rate changes unemployment rate by 1 percent in the opposite direction in Mauritius.

Suggested Citation

  • Usha Devi Chuttoo, 2020. "Effect of Economic Growth on Unemployment and Validity of Okun’s Law in Mauritius," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 231-250, May.
    • Handle: RePEc:sae:emeeco:v:12:y:2020:i:2:p:231-250
    DOI: 10.1177/0974910119886934
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    References listed on IDEAS

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    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.
    3. Abdisalan Aden Mohamed, 2024. "Economic growth and unemployment nexus: empirical test of Okun’s law in Somalia," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 13(1), pages 1-12, December.
    4. Bosede Olanike Awoyemi & Mark Achukwu & Simon Asala & Oluwole Aiyegbusi & Tajudeen Abiodun Onikate-Amosu, 2024. "Building Resilience for Transformational Recovery: An Analysis of Monetary Policy and Economic Growth in West Africa before and Following the COVID-19 Periods," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 111-122, July.

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