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Revisiting the Relationship between Unemployment Rate and Economic Growth in Algeria, 1970-2014: Co-Integration Approach using ARDL model

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  • Dahmani, Mohamed Driouche
  • Rekrak, Mounia

Abstract

The study provides an estimation of Okun’s law in Algeria during the period (1970 - 2014) using for this purpose time series of techniques. Our empirical analysis consists of Dickey-Fuller test (ADF) (Dickey and Fuller 1979 and 1981), and the Phillips–Perron (1988) test and ARDL Bounds Testing Approach to Co-integration test between unemployment rate and economic growth. The estimated results of the present study conformed existence of stable, long run negative effect juste in one model (the difference version of Okun's law), whereas, in short run no relationship is observed. A one percent increase in economic growth is associated with reduction in the unemployment level by 0.265 percent in the long run. The ECM indicates high speed of adjustment of short run fluctuation as 63 percent short disequilibrium adjusts in a year. Algeria must try to increase and diversify the sources of economic growth. The results of this study have important implications for determining macroeconomic policy. It is absolutely essential that the Algerian economy cease to be excessively dependent on the hydrocarbon sector, which is intensive capital but requires little labour. The Algerian economy should diversify away from its dependence on the energy sector.

Suggested Citation

  • Dahmani, Mohamed Driouche & Rekrak, Mounia, 2015. "Revisiting the Relationship between Unemployment Rate and Economic Growth in Algeria, 1970-2014: Co-Integration Approach using ARDL model," MPRA Paper 92045, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:92045
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    References listed on IDEAS

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    1. Huang, Ho-Chuan (River) & Lin, Shu-Chin, 2008. "Smooth-time-varying Okun's coefficients," Economic Modelling, Elsevier, vol. 25(2), pages 363-375, March.
    2. 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.
    3. Prachowny, Martin F J, 1993. "Okun's Law: Theoretical Foundations and Revised Estimates," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 331-336, May.
    4. Kaufman, Roger T., 1988. "An international comparison of Okun's laws," Journal of Comparative Economics, Elsevier, vol. 12(2), pages 182-203, June.
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    Cited by:

    1. Hala Hjazeen & Mehdi Seraj & Huseyin Ozdeser, 2021. "The nexus between the economic growth and unemployment in Jordan," Future Business Journal, Springer, vol. 7(1), pages 1-8, December.
    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.

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    More about this item

    Keywords

    Okun’s Law; economic growth; unemployment rate; HP filter; ARDL Bounds Testing Approach to Co-integration;
    All these keywords.

    JEL classification:

    • 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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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