Nonlinear Co-Integration Between Unemployment and Economic Growth in South Africa

Andrew Phiri

Managing Global Transitions, 2014, vol. 12, issue 4 (Winter), 303-324

Abstract: In this paper, a momentum threshold autoregressive (MTAR) model is used to evaluate nonlinear equilibrium reversion between unemployment and economic growth for South African data between the periods 2000–2013. To attain this objective we estimate the first-difference and the gap model variations of Okun’s specification. For the latter model variation, we employ three de-trending methods to obtain the relevant ‘gap’ data; namely, the Hodrick-Prescott (HP) filter, the Baxter-King (BK) filter and the Butterworth (BW) digital filter. A common finding from our empirical analysis is that Okun’s law holds concretely for South African data regardless of the model specification or the de-trending technique that is used. Moreover, our analysis proves that unemployment Granger causes economic growth in the long-run, a result which may account for the jobless-growth phenomenon experienced by South Africa over the last decade or so.

Keywords: unemployment; economic growth; Okun’s law; South Africa; MTAR model; nonlinear unit root tests; nonlinear co-integration; nonlinear Granger tests; Hodrick-Prescott filter; Baxter-King filter; Butterworth high-pass filter (search for similar items in EconPapers)
JEL-codes: C22 C51 E23 E24 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (20)

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