The Validity of Okun’s Law, Case of Turkey

Abstract

 In this study, the correlation between economic growth and unemployment in Turkey is investigated using data for the period from 2001 to 2017. An attempt is made to identify the validity of Okun’s law, proposing a negative correlation between growth and unemployment rates, in terms of the Turkish economy. With this aim, regression analysis found economic growth in Turkey had a reducing effect on the unemployment rate for the investigated period and every 1% point of economic growth exceeding 4.9% was determined to reduce unemployment by 0.09%. However, the test performed to determine the Granger causality between growth and unemployment in Turkey observed that economic growth Granger-causes employment but unemployment does not Granger-cause economic growth. Stated differently, economic growth in Turkey affects the unemployment rate; however, the direction of this effect does not occur from unemployment towards growth

Key words: Economic Growth, Unemployment, Okun’s Law