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2019•Economie teoretică şi aplicatăOpen access

The validity of Okun’s Law: Evidences from Indian economy

Tariq Ahmad Bhat, Tariq Ahmad Lone, Towseef Mohi Ud Din

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Abstract

Unemployment is one of the most prominent issues being faced by developing countries especially India. Unemployment means productive resources not being utilized at all, which results low growth rate in real GDP. In macroeconomic terminology this relationship is called as Okun’s Law. The main aim of this paper is to examine whether there exists an Okun type relationship in Indian economy or not. Empirical result shows negative and significant effect of growth upon unemployment rate. Our model suggests that 1% increase in GDP will decrease unemployment rate by 0.4 percentage point.

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What this paper is about

Unemployment is one of the most prominent issues being faced by developing countries especially India. Unemployment means productive resources not being utilized at all, which results low growth rate in real GDP. In macroeconomic terminology this relationship is called as Okun’s Law. The main aim of this paper is to examine whether there exists an Okun type relationship in Indian economy or not. Empirical result shows negative and significant effect of growth upon unemployment rate. Our model suggests that 1% increase in GDP will decrease unemployment rate by 0.4 percentage point.

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Available abstract

Unemployment is one of the most prominent issues being faced by developing countries especially India. Unemployment means productive resources not being utilized at all, which results low growth rate in real GDP. In macroeconomic terminology this relationship is called as Okun’s Law. The main aim of this paper is to examine whether there exists an Okun type relationship in Indian economy or not. Empirical result shows negative and significant effect of growth upon unemployment rate. Our model suggests that 1% increase in GDP will decrease unemployment rate by 0.4 percentage point.

Key concepts: Okun's law, Economics, Unemployment, Unemployment rate, Misery index, Real gross domestic product, Macroeconomics, Terminology

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