Does One Law Fit All? Cross-Country Evidence on Okun’s Law

Laurence Ball, Davide Furceri, Daniel Leigh and Prakash Loungani
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Daniel Leigh: IMF

Open Economies Review, 2019, vol. 30, issue 5, No 2, 874 pages

Abstract: Abstract This paper compares the performance of Okun’s Law in advanced and developing economies. On average, the Okun coefficient—which measures the short-run responsiveness of labor markets to output fluctuations—is about half as large in developing as in advanced countries. However, there is considerably heterogeneity across countries, with Okun’s Law fitting quite well for a number of developing countries. We have limited success in explaining the reasons for this heterogeneity. The mean unemployment rate and the share of services in GDP are associated with the Okun coefficient, whereas other factors such as indices of overall labor and product market flexibility do not appear to play a consistent role.

Keywords: Unemployment; Okun's Law; Developing economies; Job creation (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s11079-019-09549-3

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