YOUTH UNEMPLOYMENT IN DEVELOPING AND EMERGING COUNTRIES: DOES INSTITUTIONAL QUALITY MATTER?

Abstract

This paper examines the relationship between real gross domestic product (GDP) growth and youth unemployment rates, commonly known as Okun's Law. it estimates an augmented version of Okun's Law to analyze the non-linear relationship between fluctuations in GDP and youth unemployment across 88 developing and emerging countries from 1985 to 2019. By incorporating the influence of institutional quality, we explored the non-linear nature of youth unemployment responsiveness to GDP fluctuations. Our analysis employed the 3SLS regressor technique to estimate the model parameters. Our findings suggest that the responsiveness of youth unemployment to changes in GDP is notably heightened in countries with robust institutional environment. We, also, find that the variable representing GDP fluctuations is significantly influenced by the explanatory factors included in our model. Overall, our study contributes to a deeper understanding of Okun's Law by emphasizing the role of institutional quality in modulating the relationship between GDP fluctuations and youth unemployment.

 Keywords: Emerging and developing countries, Institutional quality, Panel-data regressions, Youth unemployment.

Jel Classifications: C33, J08, O43