The Validity of Okun’s Law in Bangladesh Economy: Is Bangladesh Heading towards a Jobless Growth?

Rafat Ul Hauque

Oct-Nov-Dec

Abstract
A veteran American economist named Arthur Melvin Okun, while working with US data in 1962, found out empirical evidence between two extremely important macroeconomic variables- unemployment and real output. Since his discovery, this empirically observed relationship became widely popular as Okun’s Law. The Gap Version of the law states that for every percentage increase in economy’s unemployment, the output of the economy will be additionally 2 percent lower than economy’s potential output. The Difference Version of the same law examines the relationship between the aforementioned variables based on quarterly changes. Subsequent to Okun’s first observation, there were many attempts to check the validity of the law among many economists across the globe. These endeavors to check the validity of the law in advanced economies to emerging economies have led to multiple discussions. In many cases, it was observed that, the law seems to work in the advanced economies more than the not-so-advanced economies. This paper aims to check the validity of Okun’s Law in Bangladesh economy. In order to examine the relationship, the paper obsereved 26 years of time series data for unemployment and output and examined the relationship between these two variables through OLS Regression. The paper observed the relationship from two approaches- the Gap Version and the Difference Version of the law and found out the Okun’s Coefficient in Bangladesh economy. In both approaches, the results showed that the in Bangladesh economy, the negative relationship exists, which aligns with the law; however, the value of the coefficient is insignificant, which is insinuating to the event that Bangladesh economy might be experiencing a jobless recovery.

Keyword: Validity, Jobless, Okun’s Law

Research Area: Law

Country: Bangladesh

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