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

Dahmani, Mohamed Driouche and Rekrak, Mounia (2015): Revisiting the Relationship between Unemployment Rate and Economic Growth in Algeria, 1970-2014: Co-Integration Approach using ARDL model.

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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.

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