EMPIRICAL EVIDENCE ON THE RELATIONSHIP BETWEEN UNEMPLOYMENT AND ECONOMIC GROWTH IN CROATIA
Abstract:Okun’s law is a valuable tool for understanding the relationship between economic growth and employment, but it should be adapted to the specific characteristics of the observed economy, including demographics, structural reforms, and the broader economic environment. The primary aim of this paper is to examine the relationship between unemployment and economic growth in Croatia. The analysis is based on quarterly time series data spanning from 2000Q1 to 2024Q4 and employs a range of analytical models, including first-difference and gap specifications, nonlinear autoregressive distributed lag (NARDL) models, and the Granger causality model, in order to capture the underlying complexity of the growth-unemployment nexus. Ultimately, the findings confirm that Okun’s law remains a useful empirical tool, especially when applied as a gap model and during stable economic periods. However, its explanatory power weakens during times of economic turbulence, highlighting the need for flexible models capable of accommodating nonlinearities and structural breaks.
Keywords: unemployment, Croatia, Okun law.
