IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/57398.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/57398/1/MPRA_paper_57398.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-645, August.
    2. Viren, Matti, 2001. "The Okun curve is non-linear," Economics Letters, Elsevier, vol. 70(2), pages 253-257, February.
    3. Elisabeth T. Pereira & J. P. Cerdeira Bento & Ricardo Fernando Silva, 2009. "Cointegration and Asymmetric Adjustment between Output and Unemployment: an Application to the U.S. Economy," Working Papers de Economia (Economics Working Papers) 52, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
    4. Jonas D. M. Fisher & Jeffrey R. Campbell, 2000. "Aggregate Employment Fluctuations with Microeconomic Asymmetries," American Economic Review, American Economic Association, vol. 90(5), pages 1323-1345, December.
    5. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 119-136, Suppl. De.
    6. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-176, April.
    7. Reinhold Kosfeld & Christian Dreger, 2006. "Thresholds for employment and unemployment: A spatial analysis of German regional labour markets, 1992–2000," Papers in Regional Science, Wiley Blackwell, vol. 85(4), pages 523-542, November.
    8. Kwami Adanu, 2005. "A cross-province comparison of Okun's coefficient for Canada," Applied Economics, Taylor & Francis Journals, vol. 37(5), pages 561-570.
    9. Rangan Gupta & Josine Uwilingiye, 2010. "Dynamic Time Inconsistency And The South African Reserve Bank," South African Journal of Economics, Economic Society of South Africa, vol. 78(1), pages 76-88, March.
    10. Dany Lang & Christian de Peretti, 2009. "A strong hysteretic model of Okun's Law: theory and a preliminary investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(4), pages 445-462.
    11. Marina Marinkov & Jean‐pierre Geldenhuys, 2007. "Cyclical Unemployment And Cyclical Output: An Estimation Of Okun'S Coefficient For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 75(3), pages 373-390, September.
    12. Walter Enders & Selahattin Dibooglu, 2001. "Long-Run Purchasing Power Parity with Asymmetric Adjustment," Southern Economic Journal, John Wiley & Sons, vol. 68(2), pages 433-445, October.
    13. Moosa, Imad A., 1997. "A Cross-Country Comparison of Okun's Coefficient," Journal of Comparative Economics, Elsevier, vol. 24(3), pages 335-356, June.
    14. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
    15. Lee, Jim, 2000. "The Robustness of Okun's Law: Evidence from OECD Countries," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 331-356, April.
    16. Brian Silverstone & Richard Harris, 2001. "Testing for asymmetry in Okun's law: A cross-country comparison," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-13.
    17. Petre Caraiani, 2010. "Bayesian Linear Estimation of Okun Coefficient for Romania: Sensitivity to Priors Distributions," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(38), pages 53-65, December.
    18. Edward S. Knotek, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q IV), pages 73-103.
    19. P. Burger & M. Marinkov, 2006. "The South African Phillips Curve: How Applicable Is The Gordon Model?," South African Journal of Economics, Economic Society of South Africa, vol. 74(2), pages 172-189, June.
    20. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    21. Paramsothy Silvapulle & Imad Moosa & Mervyn Silvapulle, 2004. "Asymmetry in Okun's law," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 353-374, May.
    22. Pollock, D. S. G., 2000. "Trend estimation and de-trending via rational square-wave filters," Journal of Econometrics, Elsevier, vol. 99(2), pages 317-334, December.
    23. Holmes, Mark J. & Silverstone, Brian, 2006. "Okun's law, asymmetries and jobless recoveries in the United States: A Markov-switching approach," Economics Letters, Elsevier, vol. 92(2), pages 293-299, August.
    24. Villaverde, José & Maza, Adolfo, 2009. "The robustness of Okun's law in Spain, 1980-2004: Regional evidence," Journal of Policy Modeling, Elsevier, vol. 31(2), pages 289-297.
    25. Enders, Walter & Granger, Clive W J, 1998. "Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 304-311, July.
    26. Christian Weber & James West, 1996. "Functional form in regression models of Okun's law," Applied Economics Letters, Taylor & Francis Journals, vol. 3(9), pages 607-609.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Taleb Awad-Warrad & Buthaina M. A. Muhtaseb, 2017. "Trade Openness and Inclusive Economic Growth: Poverty Reduction through the Growth Unemployment Linkage," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 348-354.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew Phiri, 2014. "Nonlinear Co-Integration Between Unemployment and Economic Growth in South Africa," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 12(4 (Winter), pages 303-324.
    2. Kavese Kambale & Phiri Andrew, 2020. "A Provincial Perspective of Nonlinear Okun’s Law for Emerging Markets: The Case of South Africa," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(3), pages 59-76, September.
    3. Shabir Mohsin Hashmi & Ali Gul Khushik & Muhammad Akram Gilal & Zhao Yongliang, 2021. "The Impact of GDP and Its Expenditure Components on Unemployment Within BRICS Countries: Evidence of Okun’s Law From Aggregate and Disaggregated Approaches," SAGE Open, , vol. 11(2), pages 21582440211, June.
    4. Abdessalem GOUIDER & Ridha NOUIRA & Faouzi SBOUI, 2018. "La relation croissance-chômage en Tunisie : validation de la spécification non linéaire de la loi d’Okun," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 47, pages 27-41.
    5. Ousama Ben-Salha & Zouhair Mrabet, 2019. "Is Economic Growth Really Jobless? Empirical Evidence from North Africa," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(4), pages 598-624, December.
    6. Giorgio Canarella & Stephen M. Miller, 2017. "Did Okun’s law die after the Great Recession?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(4), pages 216-226, October.
    7. Durech, Richard & Minea, Alexandru & Mustea, Lavinia & Slusna, Lubica, 2014. "Regional evidence on Okun's Law in Czech Republic and Slovakia," Economic Modelling, Elsevier, vol. 42(C), pages 57-65.
    8. Celia Melguizo, 2017. "An analysis of Okun’s law for the Spanish provinces," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 37(1), pages 59-90, February.
    9. Porras-Arena, M. Sylvina & Martín-Román, Ángel L., 2023. "The heterogeneity of Okun's law: A metaregression analysis," Economic Modelling, Elsevier, vol. 128(C).
    10. Roger Perman & Gaetan Stephan & Christophe Tavéra, 2015. "Okun's Law—a Meta-analysis," Manchester School, University of Manchester, vol. 83(1), pages 101-126, January.
    11. Antal, Miklós, 2014. "Green goals and full employment: Are they compatible?," Ecological Economics, Elsevier, vol. 107(C), pages 276-286.
    12. Andrew Phiri, 2019. "Fitting Okun's law for the Swazi Kingdom: Will a nonlinear specification do?," Economics Bulletin, AccessEcon, vol. 39(2), pages 1371-1383.
    13. Brian Tavonga Mazorodze & Noureen Siddiq, 2018. "On the Unemployment Output Relation in South Africa: A Non-Linear ARDL Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 167-178.
    14. KARGI, Bilal, 2014. "Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 119, pages 77-85.
    15. Bande, Roberto & Martín-Román, Ángel, 2018. "Regional differences in the Okun’s Relationship: New Evidence for Spain (1980-2015)," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 41, pages 137-165.
    16. Koutroulis, Aristotelis & Panagopoulos, Yannis & Tsouma, Ekaterini, 2016. "Asymmetry in the response of unemployment to output changes in Greece: Evidence from hidden co-integration," The Journal of Economic Asymmetries, Elsevier, vol. 13(C), pages 81-88.
    17. Kim, Jun & Yoon, Jong Cheol & Jei, Sang Young, 2020. "An empirical analysis of Okun’s laws in ASEAN using time-varying parameter model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    18. Roger, Perman & Jean-Philippe, Boussemart & Walter, Briec & Christophe, Tavéra, 2013. "How do technical change and technological distance influence the size of the Okun’s Law coefficient?," SIRE Discussion Papers 2013-60, Scottish Institute for Research in Economics (SIRE).
    19. Byeongseon Seo, 2004. "Testing for Nonlinear Adjustment in Smooth Transition Vector Error Correction Models," Econometric Society 2004 Far Eastern Meetings 749, Econometric Society.
    20. Costas KARFAKIS & Constantinos KATRAKILIDIS & Eftychia TSANANA, 2014. "Does output predict unemployment? A look at Okun's law in Greece," International Labour Review, International Labour Organization, vol. 153(3), pages 421-433, September.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:57398. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.