Dynamics of GDP Growth and Unemployment: Evidence from Developed and Developing Asian Countries

Abstract

This study undertakes an examination of the relationship between GDP growth and the unemployment rate across developed and developing Asian countries spanning the period from 1980 to 2021. Adopting the Okun's law framework, we aim to estimate the co-integration dynamics and assess the presence of weak or strong Granger-causality between GDP growth and the unemployment rate using the autoregressive distributed lag (ARDL) approach. Our empirical analysis yields several noteworthy findings. Firstly, we observe a negative sign for both the long-run coefficient and the short-run coefficient between the unemployment rate and GDP growth across both developed and developing Asian countries. This indicates a consistent inverse relationship between economic growth and unemployment, in line with the tenets of Okun's law. Interestingly, our results indicate that while some developed and developing Asian countries adhere closely to the traditional Okun's law framework, others exhibit variations in the coefficient values. Specifically, the coefficient values observed in certain countries are higher than those predicted by the original Okun's law, suggesting a heightened sensitivity of unemployment to changes in GDP growth. This divergence from the traditional framework underscores the existence of a modified Okun's law framework in the macroeconomic performance of these countries. Overall, our findings contribute to a deeper understanding of the dynamics between GDP growth and unemployment in the Asian context. By highlighting variations in the application of Okun's law across different countries, our study underscores the importance of considering country-specific factors and economic conditions in analyzing the relationship between economic growth and labor market outcomes. This nuanced understanding can inform policy formulation and facilitate the design of targeted interventions to address unemployment challenges and promote sustainable economic growth in the region.