Unemployment and Output Growth: Evidence from Upper-Middle-Income Countries in Sub-Saharan Africa
Keywords:
Upper middle-income countries, unemployment, output growth, counter factual analysis, Okun’s law
Abstract
Several studies have found a negative relationship between unemployment rate and output growth rate. But such has not been ascertained concerning upper middle-income countries in Sub-Saharan Africa (SSA). Hence this paper examined this relationship using Panel Least Squares and Ordinary Least Squares estimation techniques based on annual series data from 1991 to 2017. The paper observed that the average output growth rate for upper middle-income countries in SSA in the period of the study was 6.36% while that of the unemployment average rate was 15.87%. The results of the panel Least Squares estimation reveals the existence of negative relationships between unemployment rate and output growth rate. In the country specific study, results from Botswana, Gabon, Mauritius and South Africa shows a positive relationship between unemployment and output growth rates revealing a case of non-inclusive growth. However, Equatorial Guinea and Namibia data on unemployment and output growth had negative relationships. The counter factual analyses conducted on the unemployment variable in term of some percentage reduction indicated that as more persons are employed there will be an increase in output growth. The findings, therefore suggests that the government should create more jobs based on labour intensive industries in upper middle-income countries in SSA, that the ratio of output growth needed to maintain stable level of unemployment rate could be sustained when there are boost in economic activities. Countries in upper middle-income in SSA that exhibited positive relationship between unemployment rate and output growth rate should concentrate more on how to increase the level of output growth rate through the boost in economic activities. Governments of these upper middle-income countries should have good policy mix focused on the reduction of unemployment at all levels.
References
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Aghion P., & Howitt, P., (1994). “Growth and Unemployment”, Review of Economic Studies 61, 477-94.
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Boultom, T., (2010). Test of Okun’s Law for the 10 Eastern European Countries, London Metropolitan Business School, and Economics Subject Group.
Davis, S.J., & Haltiwangerk, J., (1993). “Gross Job Creation, Distribution and Employment Reallocatio, “Quarterly Journal of Economics, 107, 819-864.
Derngurg, T.F., & McDougall, D.M. (1985). Macroeconomics, 7 Ed. New York: McGrew Hill.
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Dwivedi, D.N., (2008). Managerial Economics, Seventh Edition, Vikas Publishing House, New Delhi.
Elshamy, H. (2013). Okun’s law and its validity in Egypt. Journal of Emerging Issues in Economics, Finance and Banking, Vol.1 No.2
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Geidenhuys, J., & Marinkov, M., (2007). Robust Estimates of Okun’s Coefficient for South Africa. Working Paper Number 55. Department of Economics, University of the Frees State 1-18.
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Ihensekhien O.A & Erhi M.A (2016). Economic growth and unemployment categories: Evidence from Nigeria. West African Social and Management Sciences Review (WASMSR) Vol. 7
Ihensekhien, O.A & Asekome, M.O (2017) Youth unemployment and economic growth: Lesson from Low-income countries in Sub-Saharan Africa. European Journal of Economics, Law and Politics (ELP), Vol. 4, No.2.
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Knotek, E.S., (2007). “How useful is Okun’s Law? Federal Reserve Bank of Kensas, Journal of Economic Review, 4, 73-103.
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Mojica, M.A & Tatlonghari, V.M (2017) .The relationship between output growth and unemployment in the Philippines economy (1990-2014): An empirical analysis of variants of Okun’s Law, Journal of Emerging Economies and Islamic Research.5 (1) www.jeeir.com
Nadol, C., & Hussain, M. N. (1997). Employment and growth: Some empirical evidence from structural time series model. Applied Economics, 33(8), 1083-1088.
Nkurunziza, J.P., & Bates R.H., (2004). Political Institutions and Economic Growth in Africa (Centre for International Development Working Paper, No.98), Harvard University.
Obadan, M.I., & Odusola, F.A. (2000) Productivity and unemployment in Nigeria. Ibadan: National Centre for Economic Management and Administration (NCEMA)
Okun, A. (1962), “Potential GNP: its measurement and significance” Proceedings of the Business and Economic Statistics section of the American Statistical Association, pp 98-104.
Ozel, H.A, Sezgin,F.H & Topkaya,O.(2013) Investigation of Economic growth and unemployment relationship for G7 countries using regression analysis. International journal of Business and Social Sciences. Vol.4 (6)
Pissarides, C., (1990). Equilibrium Unemployment Theory, Oxford, Blackwell.
Pissarides, C., (1992). “Loss of skills during unemployment and persistence of employment shocks” Quarterly Journal of Economics, 107 (4), 1371-1391.
Prachowny, M.F.J., (1993). Okun’s Law: Theoretical Foundation, and Revised Estimates, Review of Economics and Statistics, 75, 331-336.
Romer, P., (1986). “Increasing Returns and Long-run Growth”, Journal of Political Economy, 94, 1002-1036.
Mankiw, N.G., Romer, D. & Weil, D.N. (1992) A Contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407-437.
Saint – Paul, G.J., (1992). Productivity growth and the structure of the business cycle, European Economic Review.
Salman, A.K., (2012). Testing the Causal Nexus between Output and Unemployment: Swedish Data. International Business Research. 5(10), 29-45.
Sanchis-i-Marco, M., (2011). Falacias, dilamas y Paradojas, La Economia Espanola: 1980-2010, publicaciones de la Universidad de Valencia.
Semmler, W., & Zhang, W., (2005). “The Impact of Output Growth, Labour Market Institution and Macro Policies on Unemployment” Working Paper, SCEPA.
Solow, R.M., (1956). A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, XXXIV, 1-26.
Tatoglu, F.Y., (2011). “The long and short term effects between unemployment and economic growth in Europe” Dogus University: Dergisi, 12:99-113.
Thirlwal, A.P. (2006). Growth and development: With special reference to developing economies. 8th edition, New York, Palgrave Macmillan
Todaro, M.P., (1985). Economic Development in the Third World, London.
Tombolo, G.A., & Hasegawa, M.M., (2014). Okun’s Law: Evidence for the Brazilian Economy, on line at http://mpra.ub.uni-muenchen.de/54766/
United Nations (2011). World Population Prospect. The 2010 Revision, New York, UN Population Division.
Viren, M. (2001). The Okun’s curve is non-linear. Economics Letters, 70, 253-257
Weber, C.E., (1995). Cyclical Output, Cyclical Unemployment and Okun’s Coefficient. A New Approach. Journal of Applied Econometrics, 433-445.
World Bank (2013). World Bank’s Development Indicators, Washington D.C: World Bank.
World Bank (2014) World Development Indicators, Washington D.C: World Bank.
World Bank (2018) World Development Indicators, Washington D.C: World Bank
Zanin, L., & Marra, G., (2011). Rolling Regression Versus Time-Varying Coefficient Modeling: An Empirical Investigation of the Okun’s Law in some Euro Area Countries. Bulletin of Economic Research, 64(1).
Adachi, H., (2007). Economic Growth and Unemployment: Theoretical Foundations of Okun’s Law. Review of Economics and Statistics.
Aghion P., & Howitt, P., (1994). “Growth and Unemployment”, Review of Economic Studies 61, 477-94.
Akeju, K.F., & Olanipekun, D.B., (2014). Unemployment and Economic Growth in Nigeria. Journal of Economic and Sustainable Development, 5(4), 138-144.
Amossoma, D., & Nwosa, P.I., (2013). The impact of unemployment rate in productivity growth in Nigeria: An error correction modeling approach. International Journal of Economics and Management Sciences. 2(28), 1-13
Arico, F.R., (2001). Growth and Unemployment towards a Theoretical Integration. Review of Economic Studies 96, 1-41
Barreto, H., & Howland, F. (1993), “there are two Okun’s law relationships between output and unemployment”. Working paper, Wabash College
Bean, C., & Pissarides, C., (1993). Unemployment, Consumption and Growth, European Economic Review, 37, 837-854.
Boultom, T., (2010). Test of Okun’s Law for the 10 Eastern European Countries, London Metropolitan Business School, and Economics Subject Group.
Davis, S.J., & Haltiwangerk, J., (1993). “Gross Job Creation, Distribution and Employment Reallocatio, “Quarterly Journal of Economics, 107, 819-864.
Derngurg, T.F., & McDougall, D.M. (1985). Macroeconomics, 7 Ed. New York: McGrew Hill.
Domar, E.D., (1947). “Expansion and Employment”, American Economic Review, 37, 1, 345-55 in. Domer E.D. (1957) “Essays in the Theory of Economic Growth” Oxford University Press Oxford.
Dwivedi, D.N., (2008). Managerial Economics, Seventh Edition, Vikas Publishing House, New Delhi.
Elshamy, H. (2013). Okun’s law and its validity in Egypt. Journal of Emerging Issues in Economics, Finance and Banking, Vol.1 No.2
Fogel, R.W., (1997). New Findings on Secular Trends in Nutrition and Mortality: Some Implications for Population Theory, M. Rossenzweing and O. Stark (Eds.) The Hand Book of Population and Family Economics. W.I.A, Amsterdam.
Gbosi, A.N., (1993). Unemployment and Economic Growth in Nigeria, Ikot Abasi: Gabby Associates.
Geidenhuys, J., & Marinkov, M., (2007). Robust Estimates of Okun’s Coefficient for South Africa. Working Paper Number 55. Department of Economics, University of the Frees State 1-18.
Harrod, R.E., (1939). “An Essay in Dynamic Theory”, Economic Journal, in Harrod R.F., (1972), “Economic Essays”, London, Macmillan Economic Press 256.
Hilmer, C.E. & Hilmer, M.J. (2014). Practical Econometrics (Data Collection, Analysis and Application). McGraw-Hill International Edition, New York.
Ho, W.S. (2002). Okun coefficient at Macao: Estimations and applications. 2002 Monetary Authority of Macao, 75-91.
Ihensekhien, O.A (2016). A cross country empirical analysis of the relationship between Economic growth and Unemployment in Sub-Saharan Africa, An unpublished Ph.D (Economic) Thesis of Benson Idahosa University.
Ihensekhien O.A & Erhi M.A (2016). Economic growth and unemployment categories: Evidence from Nigeria. West African Social and Management Sciences Review (WASMSR) Vol. 7
Ihensekhien, O.A & Asekome, M.O (2017) Youth unemployment and economic growth: Lesson from Low-income countries in Sub-Saharan Africa. European Journal of Economics, Law and Politics (ELP), Vol. 4, No.2.
Ihensekhien, O.A. & Ovenseri-Ogbomo, F.O. (2016). Unemployment and economic growth: Evidence from Low income countries in Sub-Saharan Africa. Journal of Finance, Banking and Investment, Vol.4. No.2.
International Labour Organization (ILO, 2010). ILO Statistics of 2010.
International Labour Organization (ILO, 2017). Global Employment Trends for Youth.
Kargi, B., (2014). Okun’s Law and Long Term Co-integration Analysis for OECD countries (1987-2012) international Research Journal of Finance.
Khemraj, T., Madrick, J., & Semmler, W., (2006). Okun’s Law and Jobless Growth. New School for Social Research, Online at http://mpora.ub.uni-muenchen.de/5488//
Knotek, E.S., (2007). “How useful is Okun’s Law? Federal Reserve Bank of Kensas, Journal of Economic Review, 4, 73-103.
Lee, J., (2000). The Robustness of Okun’s Law: Evidence from OECD Countries, Journal from Macroeconomics, 22, 331-356.
Madito, O., & Khumato, J., (2014). Economic Growth-Unemployment Nexus in South Africa: VECM Approach. Mediterranean Journal of Social Sciences, 5(20), 79-84.
Moosa, I.A., (1997). A Cross - Country Comparison of Okun’s Coefficient, Journal of Comparative Economics 24(3), 335-356
Moosa, I.A., (1999). Cyclical Output, Cyclical Unemployment and Okun’s Coefficient, Structural Time Series Approach, International Review of Economics and Finance, 8, 293-304.
Mojica, M.A & Tatlonghari, V.M (2017) .The relationship between output growth and unemployment in the Philippines economy (1990-2014): An empirical analysis of variants of Okun’s Law, Journal of Emerging Economies and Islamic Research.5 (1) www.jeeir.com
Nadol, C., & Hussain, M. N. (1997). Employment and growth: Some empirical evidence from structural time series model. Applied Economics, 33(8), 1083-1088.
Nkurunziza, J.P., & Bates R.H., (2004). Political Institutions and Economic Growth in Africa (Centre for International Development Working Paper, No.98), Harvard University.
Obadan, M.I., & Odusola, F.A. (2000) Productivity and unemployment in Nigeria. Ibadan: National Centre for Economic Management and Administration (NCEMA)
Okun, A. (1962), “Potential GNP: its measurement and significance” Proceedings of the Business and Economic Statistics section of the American Statistical Association, pp 98-104.
Ozel, H.A, Sezgin,F.H & Topkaya,O.(2013) Investigation of Economic growth and unemployment relationship for G7 countries using regression analysis. International journal of Business and Social Sciences. Vol.4 (6)
Pissarides, C., (1990). Equilibrium Unemployment Theory, Oxford, Blackwell.
Pissarides, C., (1992). “Loss of skills during unemployment and persistence of employment shocks” Quarterly Journal of Economics, 107 (4), 1371-1391.
Prachowny, M.F.J., (1993). Okun’s Law: Theoretical Foundation, and Revised Estimates, Review of Economics and Statistics, 75, 331-336.
Romer, P., (1986). “Increasing Returns and Long-run Growth”, Journal of Political Economy, 94, 1002-1036.
Mankiw, N.G., Romer, D. & Weil, D.N. (1992) A Contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407-437.
Saint – Paul, G.J., (1992). Productivity growth and the structure of the business cycle, European Economic Review.
Salman, A.K., (2012). Testing the Causal Nexus between Output and Unemployment: Swedish Data. International Business Research. 5(10), 29-45.
Sanchis-i-Marco, M., (2011). Falacias, dilamas y Paradojas, La Economia Espanola: 1980-2010, publicaciones de la Universidad de Valencia.
Semmler, W., & Zhang, W., (2005). “The Impact of Output Growth, Labour Market Institution and Macro Policies on Unemployment” Working Paper, SCEPA.
Solow, R.M., (1956). A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, XXXIV, 1-26.
Tatoglu, F.Y., (2011). “The long and short term effects between unemployment and economic growth in Europe” Dogus University: Dergisi, 12:99-113.
Thirlwal, A.P. (2006). Growth and development: With special reference to developing economies. 8th edition, New York, Palgrave Macmillan
Todaro, M.P., (1985). Economic Development in the Third World, London.
Tombolo, G.A., & Hasegawa, M.M., (2014). Okun’s Law: Evidence for the Brazilian Economy, on line at http://mpra.ub.uni-muenchen.de/54766/
United Nations (2011). World Population Prospect. The 2010 Revision, New York, UN Population Division.
Viren, M. (2001). The Okun’s curve is non-linear. Economics Letters, 70, 253-257
Weber, C.E., (1995). Cyclical Output, Cyclical Unemployment and Okun’s Coefficient. A New Approach. Journal of Applied Econometrics, 433-445.
World Bank (2013). World Bank’s Development Indicators, Washington D.C: World Bank.
World Bank (2014) World Development Indicators, Washington D.C: World Bank.
World Bank (2018) World Development Indicators, Washington D.C: World Bank
Zanin, L., & Marra, G., (2011). Rolling Regression Versus Time-Varying Coefficient Modeling: An Empirical Investigation of the Okun’s Law in some Euro Area Countries. Bulletin of Economic Research, 64(1).
Published
2018-11-16
How to Cite
Abraham, I. O., & Nosa, A. L. (2018). Unemployment and Output Growth: Evidence from Upper-Middle-Income Countries in Sub-Saharan Africa. American Economic & Social Review, 3(1), 32-43. https://doi.org/10.46281/aesr.v3i1.206
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2018 Ihensekhien Orobosa Abraham, Aisien Leonard Nosa
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