Journal Press India^®

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Relationship between economic growth and unemployment rate known as the Okun’s law plays an important role in policy analysis as it allows to what extent the growth rate targets affect unemployment in an economy. The validity of Okun`s law in Botswana is examined in the present study utilising annual data during the period 1991 to 2014. The gap version and first difference version of Okun`s law has been examined employing methodology of the ordinary least squares, vector error correction model and the Granger causality test. The results do not support the negative relationship between the aforementioned macroeconomic variables thus suggesting that Okun`s law does not hold for Botswana. Large share of mining sector in the gross domestic product is the main reason for this observation. Our study therefore, recommends that the government should intensify its diversification efforts in labour intensive sectors of the economy such as the agricultural and tourism sector. ​

Keywords

Economic growth; Unemployment rate; Okun`s law; Vector Error Correction Model; Granger causality

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