Validity of the Phillips Curve in the Agricultural Sector and Asymmetric Effects: The Case of Türkiye

Abstract

Although the employment share of agriculture, which has historically been the main job creator sector, has decreased over time, it still plays an essential role in newly industrializing countries such as Türkiye. However, the depth of the decline in employment is due to the economic impact of agriculture rather than its share of GDP. One way to measure this effect is to adapt the Phillips curve (PC) for the agricultural sector. Therefore, the aim of this study is to investigate the validity of the Phillips curve in the Turkish agricultural sector and the short- and long-term linear and non-linear relationships caused by shocks on unemployment-inflation. The study was conducted via the augmented Dickey-Fuller, Phillips-Perron, and Zivot-Andrews unit root tests as well as the autoregressive distributed lag model (ARDL) and the nonlinear autoregressive distributed lag model (NARDL) via the Turkish Statistical Institute’s (TURKSTAT) 2014Q1-2021Q3 dataset. The cointegration coefficient was negative, yet statistically significant. Also, the short-term imbalances were eliminated, and the system converged to the equilibrium values in the long-run with significant fluctuations. The long-run negative cointegrated relationship and PC validity in negative shocks are the most significant results of the study.

Keywords

• inflation
• unemployment
• ardl-nardl
• negative shocks
• negative long-run cointegration