A sectoral specification of Okun’s law in oil-producing countries: evidence from panel ARDL model

Mahmoud Kraim (), Tamat Sarmidi (), Fathin Faizah () and Norlin Khalid ()
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Mahmoud Kraim: Universiti Kebangsaan Malaysia
Tamat Sarmidi: Universiti Kebangsaan Malaysia
Fathin Faizah: Universiti Kebangsaan Malaysia
Norlin Khalid: Universiti Kebangsaan Malaysia

Economic Change and Restructuring, 2023, vol. 56, issue 4, No 11, 2385-2404

Abstract: Abstract The present study investigates the sectoral version of Okun’s law for oil-rich countries from 2000 to 2019. Using a panel ARDL estimation, namely the CS-ARDL and PMG methods, this study confirms the negative association between the sectoral level of output growth and the unemployment rate. Our findings indicate that the unemployment rate is affected more by the output growth of the services sector than by that of the manufacturing and agriculture sectors. Moreover, we show that the relatively higher proportion of the services sector to the total output growth seems to explain these results. Furthermore, we revealed that oil rents play a significant role in the sectoral Okun’s coefficient difference. Finally, this study suggests that the importance of the manufacturing and agriculture sectors should be a crucial factor to be considered in the economic policy agenda in resource-rich countries. Hence, the significant implications for these countries’ policymakers are to gain additional benefits from oil sector output, support and strengthen their manufacturing and agriculture sectors, achieve sustainable economic growth, and minimize the adverse effects of oil dependence on the economy.

Keywords: Okun’s law; Manufacturing; Agriculture; Services; Panel ARDL; Oil-producing countries (search for similar items in EconPapers)
JEL-codes: E23 E24 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10644-023-09518-4

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