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ECONOMIC GROWTH AND UNEMPLOYMENT NEXUS: ARE VARYING CONDITION IN BULGARIA AND ROMANIA?
Abstract
The relationship between economic growth and unemployment has been a topic of interest in academia for almost 60 years but with a special focus on developed countries and only recent papers present results at the regional level. This paper analyzes the regional Okuns Law in two emerging countries, namely Bulgaria and Romania applying original data. To best achieve the research objective, we consider the widely valued specification of Okuns Law, that investigates the relationship between the cyclical components of output and unemployment. Moreover, we favour the Hodrick-Prescott (HP) filter for a better comparison with the literature. We discover important regional heterogeneities of Okuns, as in some Bulgarian and Romanian Regions the Okuns coefficients are not statistically significant. Furthermore, we present an analysis of the economic drivers that explain why the Okun Law is significant only in some regions. Lastly, we highlight the importance of the regional characteristic in the design of fiscal policies by discussing some policy implication, since demand-side policies are effective in unemployment reductions only in regions where the Okuns Law is significant.
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References15
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