Affiliation:
1. Izmir Institute of Technology, Faculty of Architecture, City and Regional Planning Department, Izmir, Turkey
Abstract
The current article analyzes the validity of Okun?s Law and sizable
distortions that can occur in the estimation when spatial dependence and
cyclical asymmetric impacts are not considered, which is a concern commonly
ignored by the existing literature. Primarily spatial panel regressions
(SDM, SAR, and SEM) and nonparametric regressions along with specification
tests are adopted in terms of the methodology (such as panel unit root
tests, panel cointegration, Moran?s I and Geary?s C tests of global spatial
dependence, spatial LM, and Hausman tests). Additionally, spatial
heterogeneity and cross-regional variation in Okun?s Law are investigated by
adopting geographically weighted regression, LISA (local indicators for
spatial association), and local Geary?s C analysis. A panel of 26 Turkish
NUTS-2 regions from 2004 to 2018 was analyzed. The results clearly revealed
that failing to incorporate spatial proximity and asymmetric cycle impacts
leads to the biased estimation of Okun?s coefficient, such that during the
downswing years of the national economy, Okun?s Law holds robustly:
unemployment increases quickly in response to a decline in output. In
contrast, during upswing years, the size of Okun?s coefficient is relatively
much lower. Moreover, spatial dependence and heterogeneity are sizably
evident. Okun?s coefficient is demonstrated to vary significantly across
regions that have different industrial and labor market characteristics. As
a policy implication, it has been understood that the reduction of
unemployment is more difficult than initially understood, as economic growth
itself does not provide a solution during upswing periods. The necessary
special and region-specific policies are discussed throughout the text.
Publisher
National Library of Serbia
Subject
General Economics, Econometrics and Finance
Cited by
3 articles.
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