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Cyclical Output, Cyclical Unemployment, and augmented Okun's Law in MENA zone

NEIFAR, MALIKA (2020): Cyclical Output, Cyclical Unemployment, and augmented Okun's Law in MENA zone.

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Abstract

In this paper we investigate the relationship between economic growth and unemployment in MENA zone (six Arab countries: Tunisia, Egypt, Morocco, Lebanon, Jordan, and Oman) through the implementation of Okun’s Law using quarterly dataset covering the time period 2000 :1- 2014 :4. Static and Dynamic linear models are used to test the linkage between cyclical unemployment and cyclical growth rate. The empirical results from all these models do not indicate robust evidence but it confirm an inverse linkage between unemployment rate and economic growth, as the Okun’s Law suggests (except for Oman). Initially, the static linear model, the static asymmetric model, and the dynamic linear models (ARDL) fail to explain the long run tradeoff between unemployment and output due to severe model misspecifications. Most of these results are in line with previous studies ( (Moosa I. A., 2008), (Kreishan, 2011), (Andari & Bouaziz, 2015)), and (Al-hosban, 2017). In an NARDL gap specification, the Okun’s coefficients are the asymmetric long run parameters. Okun’s coefficients are statistically significant, which means that output growth can be translated into employment gains. Absolute effect of an economic contraction is significantly larger than that of an expansion in Tunisia, Egypt, Morocco, and Libanon. The opposite is true for Jordan and Oman. An economic upturn of 3.37%, 2.98%, and 2.5% respectively in Tunisia, Morocco, and Egypt reduces unemployment by 1%, while the downturn of 5.03%, 2.43% (and about 12%) respectively in Tunisia, Morocco (and Lebanon and Jordan) achieves the opposite. Empirical finding provides then an additional proof that Okun’s law could exist in a developing countries such as Tunisia, Egypt, Morocco, Lebanon, and Jordan.

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