Modelling the Okun’s Law in the midst of Structural Breaks: Evidence from Nigeria

Abstract

This objective of the study is to investigate the impact of economic growth on unemployment in Nigeria, with a view to uncovering the validity or otherwise of the Okun’s law. Both linear and non-linear specifications were considered, using quarterly data spanning 1991Q1 to 2019Q1. The study deploys a battery of cointegration techniques that account for structural breaks. The empirical result indicates that unemployment and growth are cointegrated. The estimated coefficients in both the linear and non-linear specifications show that growth is positively related to unemployment and that the impact of the latter on the former is not statistically significant. Thus, the growth experienced in the country under the period of investigation is not accompanied by reduced unemployment. Thus, whether it is the linear or the non-linear frameworks, the Okun’s law is invalid under the period of study in Nigeria. The study recommends that policies should be aimed at not merely growing the economy but deliberately targeted at sectors capable of absorbing many people such as agriculture, mining, construction and services sectors.

Keywords

• growth
• cointegration
• linear and non-linear dynamics
• nigeria
• okun’s law
• unemployment