The Impact of GDP and Its Expenditure Components on Unemployment Within BRICS Countries: Evidence of Okun's Law From Aggregate and Disaggregated Approaches

This article examines the responsiveness of changes in the unemployment rate to changes in output for Brazil, Russia, India, China, and South Africa (BRICS) using aggregate and disaggregated data from 1991 to 2018. We also split the entire sample period into two subsamples (from 1991 to 2008 and 2009 to 2018) to see the responsiveness of changes in the unemployment rate to changes in the GDP in pre and post global financial crisis period of 2007-2008. Three different econometric methods were employed for conducting the analysis. Results obtained from aggregated and disaggregated data for the entire sample and two subsamples confirm the validity of the Okun law for BRICS. The postcrisis period Okun's law estimates are larger than those from the full sample and precrisis period. Disaggregated data results show private consumption is the main determinant of the unemployment rate and its estimate is negative and significant. Along with consumption expenditures, other variables that have relevancy in determining changes in the unemployment rate are government expenditures, exports, and imports. Based on aggregated and disaggregated data results, it is recommended that the relevant authorities must focus sustainable economic growth for reducing unemployment rate in the country. Particularly, they must incentivize consumption and government expenditures, boost exports, and curtail imports for reducing the unemployment rate.