Asymmetry relationship between economic growth and unemployment rates in the Saudi economy: Application of Okun’s law during the period 1991–2017

Abstract

The purpose of this paper is to examine Okun’s law in the Saudi economy by examining the impact of the OUTPUT gap on the unemployment rates’ gap, and the contribution of economic growth to reducing unemployment. This investigation intends to fill a major gap regarding empirical literature on OKUN law drivers in developing countries in general and Arab countries in particular. The autoregressive distributed lag bounds testing technique is used to examine the existence of Okun’s law in the Saudi Economy during 1991–2017. The empirical results reveal the existence of Okun’s law in the Saudi economy. Coefficients estimated by using the Gap Version and concluded that there was a negative and significant impact of the gross domestic product gap on unemployment rates, with a 1% increase in Gross Domestic Product being correlated with a 0.29% decrease in the unemployment rate. This research aims to fill a gap by using the Okun coefficient to study the effect of increasing economic growth rates on unemployment rates in the Saudi economy during 1991–2017.