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Testing Okun’s law in South Africa

Stungwa, Sanele and Tozamile, Siphuxolo (2021): Testing Okun’s law in South Africa.

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Abstract

The objective of this study is to test the existence of Okun’s coefficient in South Africa. The study used an annual data spanning from 1995 to 2020. The study employed error correction model(ECM) which tests a short run relationship between the variables under the study. The granger causality test is also applied the check the short run causal relationship between the variables. The findings of the study show that there is a negative and significant relationship between unemployment and gross domestic product in the short run. Therefore, Okun’s Law exists in South Africa. The results from granger causality test show that GDP granger cause unemployment in South Africa. Therefore, the study suggests that policymaker should focus on balancing labour intensive and capital-intensive jobs, and also to encourage entrepreneurship and proper education and training.

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