The extent to which Okun's Law was achieved in the Egyptian economy during the period (1990-2019)

Document Type : Original Article

Authors

1 Professor of Economics Faculty of Economics and Political Science - Alexandria University Dean of the Higher Institute of Advanced Administrative Sciences and Computers in Beheira

2 Assistant Professor of Economics and Vice Dean for Graduate Studies and Research Faculty of Economics and Political Science - Alexandria University

Abstract

The research aims to analyze and estimate the relationship between economic growth and unemployment in Egypt for the period (1990-2019). Furthermore, the validity of Okun's law is examined in the Egyptian economy. To achieve the research’s aims, the relationship between economic growth and unemployment is examined in the literature, and the development of this relationship in the Egyptian economy is analyzed over the period of the study. Finally, the effect of economic growth on the unemployment is estimated using the co-integration approach, especially the ARDL and ECM techniques to estimate the long-run and short-run relationship simultaneously.
The long-run results show the existence of a co-integration relationship between the GDP growth and unemployment according to the “Difference Model”, which confirms the validity of Okun's law. the Okun's coefficient is estimated to be -0.44, which means that a 1% increase in GDP growth tends to decrease the unemployment rate by 0.44%. However, Okun's law is not validated in the long run according to the “Gap Model”. In the short run, the value of Okun’s coefficient is -0.11 in the “Differences Model”, and -0.35 in the “Gap Model”. The latter result confirms the validation of Okun's law, especially in the short term, although the explanatory power of the two models is moderate, which indicate the importance of other types of unemployment- rather than the cyclical unemployment- in the Egyptian economy.

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