POTENTIAL-REAL GDP RELATIONSHIP AND GROWTH PROCESS OF NIGERIAN ECONOMY: AN EMPIRIICAL RE-EVALUATION OF OKUN’S LAW

Abstract

The study provides an empirical evaluation of the relationship between output and unemployment using the ―first difference‖ and output-gab versions of the regression equations that were first estimated by Okun. The study particularly adopts vector autoregressive (VAR) mechanism to estimate this relationship; and finds out that the Okun‘s coefficient is not significant in Nigerian economy. But however, the trade-off between output-gab and unemployment gab is positive, meaning that a decrease in the gap between natural rate of unemployment and current rate of unemployment leads to a decrease in the difference between potential GDP and real GDP.