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Test of Okun’s Law in Some Asian Countries Co-Integration Approach

Lal, Irfan and Mohammad, Sulaiman D. and Hussain, Adnan and Jalil, Anwar (2012): Test of Okun’s Law in Some Asian Countries Co-Integration Approach. Published in: European Journal of Scientific Research ISSN 1450-216X , Vol. 40, No. 1 (September 2010): pp. 73-80.

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Abstract

The objective of this paper is to estimate the Okun’s coefficient, and to check the validity of Okun’s law in some Asian countries1 whether it is valid or not, for this purpose we have used the time series annual data during the period 1980-2006. Engle Granger's (1987) co-integration technique is employed to find out the long run association between variables and an error correction mechanism (ECM) is used for short run dynamic. After getting empirical evidence it can be said that Okun’s law interpretation may not be applicable and also the principle of NAIRU does not hold its validity in some Asian developing countries. Our results have also supported to Noble Prize awarded economist Paul Krugman.

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