EMPIRICAL INVESTIGATION TO EXAMINE THE EXISTENCE OF OKUN’S LAW IN SAARC REGION

Author(s) : Naveed Aslam, Bilal Ashraf, Noor e Sahar and Wanping Yang

Abstract:

This study focused on investigating the existence of Okun’s law in the SAARC region using panel data from 1990 to 2020. For empirical investigation, the study used the panel least square method. Results indicated negative but differentiated results from other studies in magnitude comparison. These findings supported many other studies in computing negative relation but is contradictory to Okun’s law prediction of (1:3) as a decline in GDP by 3% due to unemployment increase by just 1%. Still, in the case of SAARC countries, one percent rise in unemployment decreases GDP by just 0.047 percent. These findings conclude that SAARC countries are labour-abundant countries and most of the labour force engaged in agro based sector with decreasing marginal productivity. These findings also draw attention towards the shifting of labour force from lower marginal productivity to higher marginal productivity i.e. from agriculture to industry and hence total factor productivity.