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Re-evaluating Okun's law in South Africa: A nonlinear co-integration approach

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  • Phiri, Andrew

Abstract

This study undertakes an examination of asymmetric co-integration adjustment in Okun’s law for South Africa between the periods of 2000-2013. This objective is tackled through the use of momentum threshold autoregressive (MTAR) econometric framework. Contrary to conventional theory, the results show that unemployment granger causes economic growth in the long-run, a result which may account for the job-less growth experienced by South Africa over the last decade or so. The obtained results have important implications for policy conduct in South Africa. Firstly, they prove that increases of economic growth in the long run may not cause a decrease in the unemployment rate yet a decrease in the unemployment rate will lead to increases in output growth. Secondly, these results further highlight the importance of labour market policies in improving economic growth in South Africa as opposed to policy authorities depending on higher economic growth to be driving force behind reducing unemployment rates.

Suggested Citation

  • Phiri, Andrew, 2014. "Re-evaluating Okun's law in South Africa: A nonlinear co-integration approach," MPRA Paper 57398, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57398
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    References listed on IDEAS

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    More about this item

    Keywords

    Okun’s law; South Africa; Nonlinear Unit Root Tests; Nonlinear Cointegration; Nonlinear granger tests;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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