Reexamining Okun’s law using state level panel data from Mexico
DOI:
https://doi.org/10.18381/eq.v23i1.7373Keywords:
Dynamic panel-data, Okun’s Law, heterogeneity, endogeneityAbstract
Objective: This paper investigates the validity of Okun’s law in Mexico at national and subnational levels using panel data for 32 states from 2000 to 2019, addressing gaps in prior analyses regarding slope heterogeneity, cross-sectional dependence, and endogeneity. Methodology: Second-generation panel time-series estimators, including Common Correlated Effects Mean Group and Augmented Mean Group, are applied to difference and gap specifications of Okun’s law, ensuring robustness to the identified econometric challenges. Results: Okun’s law holds at the national level. Sub nationally, it is valid in 15 states using the difference version and 11 states using the gap version, revealing substantial regional variation.Limitations/implications: Data constraints limit granularity to annual frequencies; implications emphasize tailored regional policies to mitigate unemployment-output disparities.Originality/value: This study pioneers robust second-generation estimators for subnational Okun analysis in Mexico, offering reliable coefficients for policy design.Conclusions: Heterogeneity underscores the need for advanced panel methods; Okun’s law remains a key tool for Mexican economic stabilization with nuanced subnational applications.Downloads
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