- Title
- Testing the validity of Okun’s law in South Africa within the democratic era
- Creator
- Mavikela, Nomahlubi
- Subject
- Labor market -- South Africa
- Subject
- South Africa -- Economic conditions Unemployment -- South Africa
- Date Issued
- 2019
- Date
- 2019
- Type
- Thesis
- Type
- Masters
- Type
- MCom
- Identifier
- http://hdl.handle.net/10948/41559
- Identifier
- vital:36512
- Description
- The challenge of high unemployment rates coupled with sluggish growth rates is an important issue in developing economies. The presence of high unemployment rates implies the lack of utilisation of labour resources efficiently. Hence, it being of grave importance for government to prioritise as a major macroeconomic goal the attainment of full employment due to its ability of maximising output. Okun’s law is a well-known relationship postulating an inverse relationship between unemployment and output, implying that an increase in unemployment would be associated with a decline in output and vice versa. Since the pioneer work of Okun (1962), a large volume of empirical studies have been conducted looking at the relationship between economic growth and the rate of unemployment. However, their findings are varied due to differences in the model specification, choice of variables used, econometric models and time periods. The main objective of this dissertation is to test the validity of Okun’s law in South Africa using quarterly data for the period 1994-2016. The importance of determining the effect of the association will inform policy decisions. A variety of detrending methods are utilised such as the Hodrick-Prescott filter, Corbae Ouliaris FD filter and L1 trend filter to decomposed output and unemployment into their trend and cyclical components. Furthermore, the linear and nonlinear autoregressive distributed lag (ARDL) model together with the error correction model (ECM) are employed to obtain the short and long-run estimates. Overall, the empirical results revealed that the Okun’s coefficients magnitude differed over time; however, only a selected few were found to be statistically significant for the tested time periods. Using the ARDL model the study found that in the long-run a 1% increase in GDP for the 2001-2008 time period was associated with a 0.17% decline in unemployment. While a 1% increase in unemployment in the long-run resulted in 0.78% decline in GDP. Meanwhile, in the short-run, the study confirmed that a 1% increase in GDP is associated with 0.21%-0.69% decline in unemployment. While a 1% increase in unemployment resulted in a 0.10%-0.14% decline in GDP. These findings reveal that measures aimed at boosting economic growth will have a bigger impact in reducing unemployment levels. Furthermore, these findings reiterate the need for effective policies to reduce the gradually increasing unemployment rate and improving growth levels.
- Format
- x, 91 leaves
- Format
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic Sciences
- Language
- English
- Rights
- Nelson Mandela University
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| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | SOURCE1 | Nomahlubi Mavikela.pdf | 1 MB | Adobe Acrobat PDF | View Details Download |