Examination of Okun's Law at different levels of economic development: Comparative analysis

This study aims to comparatively analyze the relationship between economic growth and unemployment within the framework of Okun's Law in the context of countries with different levels of economic development. In this context, G7 countries (USA, Germany, UK, Japan, France, Canada and Italy) representing developed economies and E7 countries (China, India, Brazil, Mexico, Indonesia, Russia and Turkey) representing developing economies were selected as samples. The data set of the study consists of annual data for the period 1991-2023 and was obtained from the World Bank database. In econometric analyses, a cross-sectional dependency test was applied in order to determine the potential dependency effects between countries. The test results revealed that there was a significant cross-sectional dependency between E7 and G7 countries. In this context, second generation unit root tests were used to determine the stationarity levels of the series. The basic analysis method of the study was the Panel ARDL (Autoregressive Distributed Lag Bound Test) model; short-term and long-term relationships were analyzed separately with this model. The findings show that the effects of economic shocks are corrected more slowly but more steadily in G7 countries, while the recovery process is faster but more fragile in E7 countries. The results show that the labor market structures between G7 and E7 countries will exhibit significant differences in the global economic structure that will take shape towards 2050. These findings show that economic development levels create a structural difference in the unemployment-growth relationship and offer important implications for policy makers to develop strategies that can be implemented under different economic structures.