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.