Testing the Validity of Okun’s Law in the Libyan Economy: An Econometric Analysis for the Period (1990–2024)

Abstract

This study examines the validity of Okun’s Law in the Libyan economy during the period 1990–2024 by analyzing the relationship between real GDP and the unemployment rate. The study employs the Autoregressive Distributed Lag (ARDL) model and the Bounds Test to examine the long-run and short-run relationships between the variables. The results confirm the existence of a long-run equilibrium relationship and reveal a statistically significant inverse relationship between real GDP and unemployment in both the long and short run, supporting the validity of Okun’s Law in Libya. The error correction mechanism indicates an appropriate adjustment toward long-run equilibrium following short-run shocks, while the diagnostic tests confirm the adequacy and stability of the estimated model. The study recommends policies that promote economic growth, diversify the productive base, encourage investment, improve the business environment, and enhance human capital development to support employment creation and reduce unemployment