Munich Personal RePEc Archive

Unemployment Hysteresis in Middle East and North Africa Countries: Panel SUR-based Unit root test with a Fourier function

Awolaja, Oladapo G. and Yaya, OlaOluwa S and Vo, Xuan Vinh and Ogbonna, Ahamuefula and Joseph, Solomon O. (2021): Unemployment Hysteresis in Middle East and North Africa Countries: Panel SUR-based Unit root test with a Fourier function. Published in: Middle East Development Journal (2 August 2021)

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Abstract

Unemployment hysteresis of the Middle East and North African (MENA) countries is investigated under a battery of unit root testing frameworks in the extant literature, including a recently proposed Panel SUR Dickey-Fuller-like unit root test with Fourier and Exponential Smooth Transition Regression (ESTR) nonlinearities. The Fourier function allows for smooth nonlinear breaks, while the ESTR nonlinearity allows for instantaneous breaks. The two nonlinearity types make the recent approach quite appealing. It has, however, been scarcely applied to empirically test unemployment hysteresis hypothesis. Although we find conflicting stances from ADF, FADF and ADF-SB testing frameworks, evidence of unemployment hysteresis effect in Lebanon is consistent across all three tests. The ADF and FADF tests confirm the hysteresis hypothesis in Kuwait and Lebanon, while FADF-SB rejects the unemployment hysteresis hypothesis across all the 19 MENA countries. The results from the KSS and FKSS unit root testing frameworks consistently affirmed the hysteresis effect in Oman and Turkey, while there are mixed stances for Kuwait and Lebanon. The results from SURADF and SURKSS only support the hysteresis hypothesis in Turkey, while the same is confirmed only for Bahrain under the SURFADF and SURFKSS testing frameworks. Unemployment hysteresis hypothesis is confirmed for 12 (about 63.15% of the total number considered) MENA economies.

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