Okun’s Law in SAARC nations
Abstract
This study intents to test Okun’s Law in SAARC nations and if job creation is
associated with economic growth. The sample includes seven SAARC nations
– Bangladesh, India, Pakistan, Maldives, Nepal, Bhutan and Sri Lanka. The
annual data considered the period in this study is from 1991-2018. This
paper uses the ARDL method to test the law for individual country both in the
long-run and short-run. This study used the gap model - HP filter and BK
filter is used for de-trending the components. CUSUM test is used to check
the stability of the estimation. The finding reveals that Okun’s law is valid in
four SAARC nations out of seven SAARC nations in the short-run –
Bangladesh, Bhutan, India and Maldives and therefore job creation is related
to output of the nation. Even though the effect of real GDP on the
unemployment rate is weak in these nations.