Asymmetry Relationship between Economic Growth and Unemployment Rates in the Arab countries: Application of the OKUN Law during 1960-2017

Abstract

A well-known macroeconomic relationship is called the OKUN Law, which states that the negative correlation between unemployment rates and raw domestic output can be determined. This study will focus on the theoretical framework for developing models of the relationship between economic growth and unemployment rates. This study contributes to the existing literature by estimate Okun’s law for Arab economies during the period 1960–2017. The results of this study indicate that Okun’s coefficient is valid for the case of Arab countries in the different version, when unemployment rates reach the threshold and are between 6.35 and 7.933, in which the impact of the GDP on unemployment rates is negative and significant, with a significant level of 1 per cent. As for outside the threshold, i.e. less than 6.35 and more significant than 7.933, this effect is negative, but it is not significant. Moreover, the decision-makers in Arab countries seek to raise economic growth rates to address unemployment. This investigation provides original empirical evidence on the association between unemployment and economic growth within Arab countries. The current international literature lacks empirical evidence on the relationship between variables of this study for Arab countries as a whole.