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Open Economies Review

, Volume 30, Issue 5, pp 841–874 | Cite as

Does One Law Fit All? Cross-Country Evidence on Okun’s Law

  • Laurence Ball
  • Davide Furceri
  • Daniel Leigh
  • Prakash LounganiEmail author
Research Article

Abstract

This paper compares the performance of Okun’s Law in advanced and developing economies. On average, the Okun coefficient—which measures the short-run responsiveness of labor markets to output fluctuations—is about half as large in developing as in advanced countries. However, there is considerably heterogeneity across countries, with Okun’s Law fitting quite well for a number of developing countries. We have limited success in explaining the reasons for this heterogeneity. The mean unemployment rate and the share of services in GDP are associated with the Okun coefficient, whereas other factors such as indices of overall labor and product market flexibility do not appear to play a consistent role.

Keywords

Unemployment Okun's Law Developing economies Job creation 

Notes

Acknowledgements

We are grateful to Nathalie Gonzalez Prieto, Zidong An, Ezgi Ozturk and Jair Rodriguez for excellent research assistance. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Laurence Ball
    • 1
  • Davide Furceri
    • 2
    • 3
  • Daniel Leigh
    • 3
  • Prakash Loungani
    • 3
    • 4
    Email author
  1. 1.Johns Hopkins UniversityBaltimoreUSA
  2. 2.University of PalermoPalermoItaly
  3. 3.IMFWashingtonUSA
  4. 4.Policy Center for the New SouthRabatMorocco

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