Does Okun's Law exist in selected Aseancountries

Nowadays, unemployment is an important issues in some developing countries. High unemployment means the labour resources are not being used efficiently. Okun's law postulates an inverse relationship between movements of the unemployment rate and the real gross domestic product (GDP). The objective of this paper is to check the validity of Okun's law in selected ASEAN countries such as Indonesia, Malaysia, Thailand, Singapore and Philippines. This study highlights method to estimate the Okun coefficient which is to use a first difference measure of unemployment. By using the annual data covering the period 1980-2009, the panel and times series techniques are used to test the relation between unemployment rate and real GDP and to obtain estimates for Okun's coefficient. Pedroni cointegration technique is used in order to find long run relation between unemployment rates and real GDP. Furthermore, the vector error correction model (VECM) is to find the short term behaviour of real GDP to its long run value. The simple regression is to examine the relationship between unemployment rate and real GDP. This study verifies negative relationshipnbetween unemployment rate and real GDP. The empirical results reveals that Okun's law can be confirmed in some ASEAN countries. The empirical analysis proves that Malaysia, Thailand and Singapore show the existence of Okun's law. However, Indonesia and the Philippines show that Okun's law is non-existent.