Re-evaluating Okun's law in South Africa: A nonlinear co-integration approach

Andrew Phiri

MPRA Paper from University Library of Munich, Germany

Abstract: This study undertakes an examination of asymmetric co-integration adjustment in Okun’s law for South Africa between the periods of 2000-2013. This objective is tackled through the use of momentum threshold autoregressive (MTAR) econometric framework. Contrary to conventional theory, the results show that unemployment granger causes economic growth in the long-run, a result which may account for the job-less growth experienced by South Africa over the last decade or so. The obtained results have important implications for policy conduct in South Africa. Firstly, they prove that increases of economic growth in the long run may not cause a decrease in the unemployment rate yet a decrease in the unemployment rate will lead to increases in output growth. Secondly, these results further highlight the importance of labour market policies in improving economic growth in South Africa as opposed to policy authorities depending on higher economic growth to be driving force behind reducing unemployment rates.

Keywords: Okun’s law; South Africa; Nonlinear Unit Root Tests; Nonlinear Cointegration, Nonlinear granger tests (search for similar items in EconPapers)
JEL-codes: C22 C51 E23 E24 (search for similar items in EconPapers)
Date: 2014-07-18
New Economics Papers: this item is included in nep-afr and nep-mac
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Citations: View citations in EconPapers (1)

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