Reexamination of Okun's law: Empirical analysis from Panel Granger Causality
Sažetak
Unemployment has been such a problem and a significant focus in several countries, especially in developing countries such as Indonesia. In its journey, the economic development process causes various impacts, such as economic structure, institutions, and community life patterns. This study aims to confirm the existence of Okun's coefficients in Indonesia. We conduct panel data of 34 provinces in Indonesia from 2014 to 2019, obtained from the Central Bureau of Statistics. The data was analyzed using the panel data model and Panel Granger Causality (an alternative to capture possible variations between economic growth and open unemployment). The Panel Granger causality analysis results show that there was one-way causality between economic growth and unemployment. It pictured several influencing factors, such as education level (an essential qualification needed in the labor market) which made it difficult for those who did not attend higher education to get a job and were vulnerable to being unemployed. Similarly, the labor force also continued to increase along with the increasing population and employment opportunities that should have absorbed labor.
Reference
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Akram, M., Hussain, S., Raza, S. H., & Masood, S. (2014). An Empirical Estimation of Okun’s Law in Context of Pakistan. Journal of Finance and Economics, 2(5), 173–177. https://doi.org/10.12691/jfe-2-5-7
Al-hosban, S., & Edienat, M. (2017). The Validity of Okun’s Law, Case of Jordan. European Scientific Journal, 13(28), 470–486. https://doi.org/10.19044/esj.2017.v13n28p470
Alamro, H., & Al-dala’ien, Q. (2016). Validity of Okun’s Law : Empirical Evidence from Jordan. Dirasat, Administrative Sciences, 43(1), 315–324. Retrieved from http://journals.ju.edu.jo/DirasatAdm/article/view/6788
Arewa, A., & Nwakanma, P. C. (2012). Potential-Real GDP Relationship and Growth Process of Nigerian Economy: an Empiriical Re- Evaluation of Okun’s Law. European Scientific Journal, 8(9), 25–33. Retrieved from https://eujournal.org/index.php/esj/article/view/143
Awad, I., Hallam, A., & Alialhuseen, M. (2018). Testing the Validity of Okun’s Rule of Thumb Across Palestine and Israel. Review of Applied Economics, 13(1–2), 37–54.
Bande, R., & Martın-RoMan, A. L. (2017). Regional differences in the Okun’s Relationship: New Evidence for Spain (1980-2015). In Munich Personal RePEc Archive Paper (No. 79833). Retrieved from https://mpra.ub.uni-muenchen.de/79833/
Batavia, A. R. (2012). Relationship between Unemployment and Gross Domestic Product: Evidence from Pakistan using Okun’s Law. Journal of Independent Studies and Research-Management, Social Sciences and Economics, 10(1), 149–157. https://doi.org/10.31384/jisrmsse/2012.10.1.10
Buzzeo, J., Marvell, R., Everett, C., & Newton, B. (2016). Tackling unemployment among disadvantaged young people. United Kingdom.
Caporale, G. M., & Škare, M. (2011). Short- and Long-Run Linkages Between Employment Growth , Inflation and Output Growth : Evidence From a Large Panel. In Economic and Finance Working Paper. Retrieved from https://www.brunel.ac.uk/__data/assets/pdf_file/0011/127487/1117.pdf
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Darman. (2013). Effect of Economic Growth on Unemployment Rate: Analysis of Okun’s Law. The Winners, 14(1), 1–12.
Demirbaş, E., & Kaya, M. V. (2015). Impact of GDP Growth on Unemployment During the Expansion Periods: a Study on Okun’s Law for Turkey. Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, (46), 84–95.
Gedek, S., Misiak, T., & Mentel, G. (2017). Changes in GDP and the employment and unemployment in the European Union. Transformations in Business and Economics, 16(3C), 42–59.
Granger, C. W. J. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37(3), 424–438. https://doi.org/10.2307/1912791
Huruta, A. D., Sasongko, G., & Saputri, R. C. (2020). An Empirical Test of Okun’s Coefficient in Indonesia. Review of Integrative Business and Economics Research, 9(s4), 140–156.
Kargi, B. (2016). Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012). Emerging Markets Journal, 6(1), 39–46. https://doi.org/10.5195/emaj.2016.92
Lee, C.-W., & Huruta, A. D. (2019). Okun’s law in an emerging country: An empirical analysis in Indonesia. International Entrepreneurship Review, 5(4), 141–161. https://doi.org/10.15678/IER.2019.0504.09
Mankiw, N. G. (2016). Macroeconomics (9th ed.; C. Marin, Ed.). New York: Worth Publisher.
Mishkin, F. S. (2016). The Economics of Money, Banking, and Financial Markets (11th ed.). England: Pearson Education.
Noor, Z. M., Nor, N. M., & Ghani, J. A. (2007). The relationship between output and unemployment in Malaysia: Does Okun’s Law exist? International Journal of Economics and Management, 1(3), 337–344.
Palombi, S., Perman, R., & Tavéra, C. (2015). Regional growth and unemployment in the medium run: asymmetric cointegrated Okun’s Law for UK regions. Applied Economics, 47(57), 6228–6238. https://doi.org/10.1080/00036846.2015.1068922
Ruxandra, P. (2015). The Specifics Of Okun’s Law In The Romanian Economy Between 2007 And 2013. Annals - Economy Series, 1(II), 50–53. Retrieved from http://www.utgjiu.ro/revista/ec/pdf/2015-01.Volumul 2/07_Pitorac.pdf
Soylu, Ö. B., Çakmak, İ., & Okur, F. (2018). Economic growth and unemployment issue: Panel data analysis in Eastern European Countries. Journal of International Studies, 11(1), 93–107. https://doi.org/10.14254/2071-8330.2018/11-1/7
United Nations. (2008). Achieving Sustainable Development and Promoting Development Cooperation. New York: United Nations Publications.
Valadkhani, A., & Smyth, R. (2015). Switching and asymmetric behaviour of the Okun coefficient in the US: Evidence for the 1948-2015 period. Economic Modelling, 50, 281–290. https://doi.org/10.1016/j.econmod.2015.07.001
Winarno, W. W. (2015). Analisis Ekonometrika dan Statistika dengan Eviews (4th ed.). Yogyakarta: UPP STIM YKPN.
Zanin, L. (2014). On Okun’s law in OECD countries: An analysis by age cohorts. Economics Letters, 125(2), 243–248. https://doi.org/10.1016/j.econlet.2014.08.030
Zanin, L., & Marra, G. (2012). Rolling regression versus time-varying coefficient modelling: An empirical investigation of the Okun’s law in some Euro area countries. Bulletin of Economic Research, 64(1), 91–108. https://doi.org/10.1111/j.1467-8586.2010.00376.x
Akram, M., Hussain, S., Raza, S. H., & Masood, S. (2014). An Empirical Estimation of Okun’s Law in Context of Pakistan. Journal of Finance and Economics, 2(5), 173–177. https://doi.org/10.12691/jfe-2-5-7
Al-hosban, S., & Edienat, M. (2017). The Validity of Okun’s Law, Case of Jordan. European Scientific Journal, 13(28), 470–486. https://doi.org/10.19044/esj.2017.v13n28p470
Alamro, H., & Al-dala’ien, Q. (2016). Validity of Okun’s Law : Empirical Evidence from Jordan. Dirasat, Administrative Sciences, 43(1), 315–324. Retrieved from http://journals.ju.edu.jo/DirasatAdm/article/view/6788
Arewa, A., & Nwakanma, P. C. (2012). Potential-Real GDP Relationship and Growth Process of Nigerian Economy: an Empiriical Re- Evaluation of Okun’s Law. European Scientific Journal, 8(9), 25–33. Retrieved from https://eujournal.org/index.php/esj/article/view/143
Awad, I., Hallam, A., & Alialhuseen, M. (2018). Testing the Validity of Okun’s Rule of Thumb Across Palestine and Israel. Review of Applied Economics, 13(1–2), 37–54.
Bande, R., & Martın-RoMan, A. L. (2017). Regional differences in the Okun’s Relationship: New Evidence for Spain (1980-2015). In Munich Personal RePEc Archive Paper (No. 79833). Retrieved from https://mpra.ub.uni-muenchen.de/79833/
Batavia, A. R. (2012). Relationship between Unemployment and Gross Domestic Product: Evidence from Pakistan using Okun’s Law. Journal of Independent Studies and Research-Management, Social Sciences and Economics, 10(1), 149–157. https://doi.org/10.31384/jisrmsse/2012.10.1.10
Buzzeo, J., Marvell, R., Everett, C., & Newton, B. (2016). Tackling unemployment among disadvantaged young people. United Kingdom.
Caporale, G. M., & Škare, M. (2011). Short- and Long-Run Linkages Between Employment Growth , Inflation and Output Growth : Evidence From a Large Panel. In Economic and Finance Working Paper. Retrieved from https://www.brunel.ac.uk/__data/assets/pdf_file/0011/127487/1117.pdf
Caraiani, P. (2009). Bayesian Linear Estimation of Okun Coefficient for Romania: Sensitivity to Priors. The Romanian Economic Journal, 38(25), 53–65. Retrieved from http://www.rejournal.eu/sites/rejournal.versatech.ro/files/articole/2010-12-01/2112/caraiani-je38.pdf
Central Bureau of Statistics. (2019). Laju Pertumbuhan Produk Domestik Regional Bruto Atas Dasar Harga Konstan 2010 Menurut Provinsi, 2010-2018 (Persen). Retrieved from Central Bureau of Statistics website: https://www.bps.go.id/dynamictable/2015/10/07/961/-seri-2010-laju-pertumbuhan-produk-domestik-regional-bruto-atas-dasar-harga-konstan-2010-menurut-provinsi-2010-2018-persen-.html
Central Bureau of Statistics. (2020a). Penduduk Berumur 15 Tahun Ke Atas Menurut Pendidikan Tertinggi yang Ditamatkan dan Jenis Kegiatan Selama Seminggu yang Lalu, 2008-2019. Retrieved from Central Bureau of Staistics website: https://www.bps.go.id/statictable/2016/04/05/1909/penduduk-berumur-15-tahun-ke-atas-menurut-pendidikan-tertinggi-yang-ditamatkan-dan-jenis-kegiatan-selama-seminggu-yang-lalu-2008-2019.html
Central Bureau of Statistics. (2020b). Tenaga Kerja. Retrieved from Central Bureau of Staistics website: https://www.bps.go.id/subject/6/tenaga-kerja.html#subjekViewTab5
Cetin, M., Gunaydın, D., Cavlak, H., & Topcu, B. (2015). Unemployment and its Impact on Economic Growth in the European Union: An Evidence from Panel Data Analysis. In Regional Economic Integration and the Global Financial System (pp. 12–22). Turkey: IGI Global Press.
Darman. (2013). Effect of Economic Growth on Unemployment Rate: Analysis of Okun’s Law. The Winners, 14(1), 1–12.
Demirbaş, E., & Kaya, M. V. (2015). Impact of GDP Growth on Unemployment During the Expansion Periods: a Study on Okun’s Law for Turkey. Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, (46), 84–95.
Gedek, S., Misiak, T., & Mentel, G. (2017). Changes in GDP and the employment and unemployment in the European Union. Transformations in Business and Economics, 16(3C), 42–59.
Granger, C. W. J. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37(3), 424–438. https://doi.org/10.2307/1912791
Huruta, A. D., Sasongko, G., & Saputri, R. C. (2020). An Empirical Test of Okun’s Coefficient in Indonesia. Review of Integrative Business and Economics Research, 9(s4), 140–156.
Kargi, B. (2016). Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012). Emerging Markets Journal, 6(1), 39–46. https://doi.org/10.5195/emaj.2016.92
Lee, C.-W., & Huruta, A. D. (2019). Okun’s law in an emerging country: An empirical analysis in Indonesia. International Entrepreneurship Review, 5(4), 141–161. https://doi.org/10.15678/IER.2019.0504.09
Mankiw, N. G. (2016). Macroeconomics (9th ed.; C. Marin, Ed.). New York: Worth Publisher.
Mishkin, F. S. (2016). The Economics of Money, Banking, and Financial Markets (11th ed.). England: Pearson Education.
Noor, Z. M., Nor, N. M., & Ghani, J. A. (2007). The relationship between output and unemployment in Malaysia: Does Okun’s Law exist? International Journal of Economics and Management, 1(3), 337–344.
Palombi, S., Perman, R., & Tavéra, C. (2015). Regional growth and unemployment in the medium run: asymmetric cointegrated Okun’s Law for UK regions. Applied Economics, 47(57), 6228–6238. https://doi.org/10.1080/00036846.2015.1068922
Ruxandra, P. (2015). The Specifics Of Okun’s Law In The Romanian Economy Between 2007 And 2013. Annals - Economy Series, 1(II), 50–53. Retrieved from http://www.utgjiu.ro/revista/ec/pdf/2015-01.Volumul 2/07_Pitorac.pdf
Soylu, Ö. B., Çakmak, İ., & Okur, F. (2018). Economic growth and unemployment issue: Panel data analysis in Eastern European Countries. Journal of International Studies, 11(1), 93–107. https://doi.org/10.14254/2071-8330.2018/11-1/7
United Nations. (2008). Achieving Sustainable Development and Promoting Development Cooperation. New York: United Nations Publications.
Valadkhani, A., & Smyth, R. (2015). Switching and asymmetric behaviour of the Okun coefficient in the US: Evidence for the 1948-2015 period. Economic Modelling, 50, 281–290. https://doi.org/10.1016/j.econmod.2015.07.001
Winarno, W. W. (2015). Analisis Ekonometrika dan Statistika dengan Eviews (4th ed.). Yogyakarta: UPP STIM YKPN.
Zanin, L. (2014). On Okun’s law in OECD countries: An analysis by age cohorts. Economics Letters, 125(2), 243–248. https://doi.org/10.1016/j.econlet.2014.08.030
Zanin, L., & Marra, G. (2012). Rolling regression versus time-varying coefficient modelling: An empirical investigation of the Okun’s law in some Euro area countries. Bulletin of Economic Research, 64(1), 91–108. https://doi.org/10.1111/j.1467-8586.2010.00376.x
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2020/12/31
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