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Regional Growth and Unemployment: The Validity of Okun's Law for the Finnish Regions

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  • Aki Kangasharju
  • Christophe Tavera
  • Peter Nijkamp
Abstract
This paper offers a concise critical overview of Okun's Law, with particular attention for its relevance in open economic systems of regions. Based on an extensive set of economic data for Finnish regions, the existence of cointegration is tested using alternative statistical methods, viz. the residual-based test and the conditional error correction model. A novelty of the paper is to combine a method of hidden cointegrations with a method of removing cross-sectional dependence. After correcting for hidden cointegrations and cross-sectional dependence, both statistical methods used yield almost similar results and confirm the presence of cointegration for the relevant data on Finnish regions. The long-run Okun relationship for regions in Finland appears to confirm results found elsewhere in the literature on countries as a whole, although the coefficients tend to be smaller. RÉSUMÉ Cette communication présente un aperçu critique concis de la loi d'Okun, et se penche tout particulièrement sur sa pertinence éventuelle pour les systèmes économiques ouverts dans les régions. Sur la base d'un ensemble de données économiques approfondies concernant les régions finnoises, on procède à des essais de l'existence d'une co-intégration, en appliquant des méthodes statistiques alternatives, à savoir les essais à base résiduelle et le modèle de correction des erreurs conditionnelles. Une nouveauté contenue dans cette communication est la combinaison d'une méthode de co-intégrations cachées avec une méthode d’élimination de la dépendance transversale. Après des corrections tenant compte des co-intégrations cachées et de la dépendance transversale, les deux méthodes statistiques utilisées produisent des résultats similaires, et confirment la présence d'une co-intégration pour les données relatives aux régions finnoises. Les rapports de longue durée de la loi d'Okun appliquée aux régions de la Finlande semblent confirmer les résultats relevés ailleurs dans la documentation générale sur les pays, même si les coefficients ont tendance à être plus petits. EXTRACTO Este estudio ofrece una perspectiva general concisa y crítica de la ley de Okun, prestando particular atención a su relevancia en sistemas económicos abiertos regionales. En base a un conjunto amplio de datos económicos sobre regiones finlandesas, se pone a prueba la existencia de cointegración utilizando métodos estadísticos alternativos, tales como, el ensayo basado en residuales y el modelo condicional de corrección de errores. Una de las novedades del estudio es que combina un método de cointegraciones ocultas con un método de eliminación de dependencia cruzada. Después de hacer correcciones para las cointegraciones ocultas y la dependencia cruzada, ambos métodos estadísticos producen resultados casi similares y confirman la presencia de cointegración en los datos oportunos sobre regiones finlandesas. La relación Okun a largo plazo de regiones en Finlandia parece confirmar los resultados encontrados en otras partes de la bibliografía sobre países enteros, aunque los coeficientes tienden a ser menores.

Suggested Citation

  • Aki Kangasharju & Christophe Tavera & Peter Nijkamp, 2012. "Regional Growth and Unemployment: The Validity of Okun's Law for the Finnish Regions," Spatial Economic Analysis, Taylor & Francis Journals, vol. 7(3), pages 381-395, September.
    • Handle: RePEc:taf:specan:v:7:y:2012:i:3:p:381-395
    DOI: 10.1080/17421772.2012.694141
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    Cited by:

    1. KARGI, Bilal, 2014. "Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 119, pages 77-85.
    2. Guisinger, Amy Y. & Hernandez-Murillo, Ruben & Owyang, Michael T. & Sinclair, Tara M., 2018. "A state-level analysis of Okun's law," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 239-248.
    3. Durech, Richard & Minea, Alexandru & Mustea, Lavinia & Slusna, Lubica, 2014. "Regional evidence on Okun's Law in Czech Republic and Slovakia," Economic Modelling, Elsevier, vol. 42(C), pages 57-65.
    4. Bande, Roberto & Martín-Román, Ángel, 2018. "Regional differences in the Okun’s Relationship: New Evidence for Spain (1980-2015)," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 41, pages 137-165.
    5. Rui Pereira, 2014. "Okun’s law, asymmetries and regional spillovers: evidence from Virginia metropolitan statistical areas and the District of Columbia," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(2), pages 583-595, March.
    6. Gina Cristina Dimian & Liviu Stelian Begu & Josef Jablonsky, 2017. "Unemployment and labour market mismatch in the European Union Countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 35(1), pages 13-44.
    7. Silvia Palombi & Roger Perman & Christophe Tavéra, 2017. "Commuting effects in Okun's Law among British areas: Evidence from spatial panel econometrics," Papers in Regional Science, Wiley Blackwell, vol. 96(1), pages 191-209, March.
    8. Martin Boďa & Mariana Považanová, 2020. "Formal and statistical aspects of estimating Okun's law at a regional level," Papers in Regional Science, Wiley Blackwell, vol. 99(4), pages 1113-1136, August.
    9. Vakulenko, Elena, 2015. "Analysis of the relationship between regional labour markets in Russia using Okun’s model," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 40(4), pages 28-48.
    10. Elhorst, J. Paul & Emili, Silvia, 2022. "A spatial econometric multivariate model of Okun's law," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    11. Jorge Chica‐Olmo & Marina Checa‐Olivas, 2021. "Spatial impact of factors influencing the achievement of the Europa2020 employment targets," Papers in Regional Science, Wiley Blackwell, vol. 100(3), pages 633-649, June.
    12. Miquel Clar-Lopez & Jordi López-Tamayo & Raúl Ramos, 2014. "Unemployment forecasts, time varying coefficient models and the Okun’s law in Spanish regions," Economics and Business Letters, Oviedo University Press, vol. 3(4), pages 247-262.

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