Quality Growth and Okun's Law in Turkiye

This study investigates the validity of Okun's Law in Turkiye over the period 1990-2019. Economic, political, and social transformations experienced over the reference period in Turkiye have caused considerable changes in the growth structure. Therefore, the Okun coefficient may not be accurate, and policies for reducing unemployment developed in this context might not be inclusive in case the estimation of the Okun coefficient solely depends on quantitative income growth. Stemming from this viewpoint, the main motivation of the study is to revise the analysis of Okun's Law in Turkey using a quality growth index that can capture the layers of economic growth from a broader perspective. In this context, the Quality Growth Index proposed by Mlachila, Tapsoba, and Tapsoba (2017) has been calculated for Turkey and used as a substitute for GDP growth in estimating the Okun coefficient. Empirical findings indicate that the negative effect obtained from quality growth on unemployment is greater than the negative effect of quantitative growth in magnitude. We also find that this finding is robust to different model specifications. Moreover, policy implications pertaining to the empirical results are also discussed.