Title: The relationship between unemployment and economic growth: is Okun's Law valid for the Saudi Arabia case?

Authors: Mouldi Ben Amor; Mustapha Ben Hassine

Addresses: Department of Economics, College of Economics and Administrative Sciences, Al-Imam University, P.O. Box 5701, Riyadh 11432, Saudi Arabia ' Department of Economics, College of Economics and Administrative Sciences, Al-Imam University, P.O. Box 5701, Riyadh 11432, Saudi Arabia

Abstract: We seek in this paper a validity of Okun's Law for Saudi Arabia over the period 1980 to 2015. Firstly, the natural unemployment rate was determined either by applying the linear regression between the observed unemployment rate and the economic growth rate or by the modified Phillips curve. Secondly, this relationship is undertaken by using the first difference and the gap model with Hodrick-Prescott (HP) filter. Using a rather new econometric approach promoted with autoregressive distributed lag, the results reveal cointegrated relationship among variables. They corroborate the Okun's Law and exhibit the relevance of causality links for economic policy decisions regarding employment. In the long-run, they indicate a significant unidirectional causality between the unemployment rate and the real output. A 1% increase in the real output for the gap (difference) model leads to a decrease in the unemployment rate by about 0.33% (0.54%), ceteris paribus.

Keywords: unemployment; output; Okun's Law; autoregressive distributed lag; ARDL; cointegration; Saudi Arabia.

DOI: 10.1504/IJEBR.2017.085553

International Journal of Economics and Business Research, 2017 Vol.14 No.1, pp.44 - 60

Received: 01 Dec 2016
Accepted: 01 Dec 2016

Published online: 14 Jul 2017 *

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