Youth Unemployment and Economic Growth in SADC countries: An Application of Okun's Law Using Panel Data.

Abstract

The study investigates whether policies, both regional and country-specific, should mainly focus on accelerating economic growth in the region to reduce youth unemployment in the SADC region. In this endeavour, the study is based on Okun’s law which prescribes that unemployment rates should generally begin to fall when economic growth rates rise above the economy’s potential. The study uses panel data for selected SADC countries whose annual youth unemployment rate is above the region’s average annual rate of 20%. Upon performing a variety of panel model mis-specification tests, the systems GMM model was chosen as the suitable model. Our findings support Okun’s proposition of a negative relationship between changes in economic growth and changes in unemployment rates. Our model predicts a 9.85 percent reduction in youth unemployment for every one-point increase above the region’s GDP growth rate.