Open Access Article

Extending Okun's Law to encompass the governance-unemployment nexus: New Insights from PMG/ARDL Approach

Authors

Muhammad Umar Farooq(1) Muhammad Umar Farooq Affiliation Department of Economics, Government College University Faisalabad, Pakistan Other articles by this author , Abdul Majeed Nadeem(2) Abdul Majeed Nadeem Corresponding author Affiliation Department of Economics, Government College University Faisalabad, Pakistan Email addressmajeednadeem@gcuf.edu.pk Other articles by this author , Qasim Ali(3) Qasim Ali Affiliation Department of Economics, Government College University Faisalabad, Pakistan Other articles by this author

  1. Department of Economics, Government College University Faisalabad, Pakistan
  2. Department of Economics, Government College University Faisalabad, Pakistan
  3. Department of Economics, Government College University Faisalabad, Pakistan

https://doi.org/10.36923/jcmi.v6i1.636

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Abstract

This study has empirically aimed at estimating the short-and long-term dynamics of financial and institutional factors with respect to the unemployment rate in the case of the selected developing economies over the period of 1996-2023. The second-generation empirical analyses, such as cross-sectional dependence and unit-root analysis, support the use of pooled mean group regression analysis. The empirical outcomes of the pooled mean group regression have confirmed the existence of Okun’s law in the influence of a rise in control of corruption, government effectiveness, and political stability to reduce the unemployment rate in this region. Among the financial factors, the economic growth-unemployment rate nexus significantly validates the existence of Okun’s law. Further, the exchange rate is also highly significant in decreasing the unemployment rate in this region. However, the negative impact of the interest rate and the positive effect of broad money growth are surprisingly significant in affecting the unemployment rate and contradict the literature. Surprisingly, the institutional factors are more responsive to the unemployment rate compared with financial indicators. These outcomes suggest important policy implications regarding institutional and financial factors to control the unemployment rate in these economies

Article information

Keywords
Okun's Lawcross-sectional dependencepool mean group regression
Section
Articles
Issue
Vol. 6 No. 1 (2025)
Submitted
March 3, 2025
Accepted
May 21, 2025
Published
June 29, 2025
Corresponding author
Abdul Majeed Nadeem
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