Abstract:

The economic objective of each economy is to establish economic growth which would be associated with less unemployment. On theoretical grounds the inverse relationship of growth and unemployment is captured by Okun’s law. The objective of this paper is to examine the relationship between economic growth and unemployment in Albania, thereby revealing the GDP impact on unemployment, in line with the theoretical framework of Okun’s law. Therefore, the study will estimate the Okun’s coefficient over a quarterly time span 1994-2021, using Vector Auto Regression (VAR) and Granger Causality analysis, as well as impulse response functions. The econometric results of the VAR analysis reveal that there exists a short-term relationship between unemployment and GDP, implying that the improvement of unemployment patterns in Albania are associated with higher growth prospects. Hence, the Okun’s elasticity coefficient is confirmed as negative and statistically significant, at both versions of the undertaken estimates of this coefficient, at difference and gap level. Moreover, the causality test shows unidirectional relationship between unemployment and GDP patterns, revealing that growth prospects of Albania’s GDP, at both versions, difference and gap versions, causes a reduction of unemployment pattern as well as unemployment potentials in the country, whereas unemployment patterns and potentials does not cause the growth patterns of GDP and output gap.

Keywords:

Albania, Causality analysis, economic growth, unemployment, Okun’s law, VAR analysis.

How to Cite:

Ardi Bezo, Lorena Bezo (Bilali) and Bardhyl Dauti. Economic Growth and Unemployment in Albania. Evidence from Time Series 1994-2021. [ref]: vol.21.2023. available at: https://refpress.org/ref-vol21-a81/