Economic Growth and Unemployment Relationship in Tunisia: an Empirical Evidence from ARDL Bound Test Approach

The relationship between economic growth and unemployment is considered as an important concept in macroeconomics both theoretically and empiri-cally. The purpose of this paper is to investigate the relationship among these two variables through checking the validity of Okun's law in Tunisia economy. The paper used annual time series data covering the period 1980-2020 ob-tained from World Bank data bases. Our analysis is carried out in two steps. Firstly, the natural unemployment rate was determined either by applying the linear regression between the obseerved unemployment rate and the eco-nomic growth rate or by the modified philips curve provided by Blanchard and Katz (1997). Secondly, the augmented autoregressive distributed lag (ARDL) bounds testing approach is applied in order to examine the long-run and short-run relationship among variables based on difference and gap model with Hodrick-Prescott (HP) filter. Findings indicate a cointegrated relationship among variable only for difference model. The associated equilibrium correc-tion was also significant confirming the existence of long-run relationship. In the long-run, results revealed a significant unidirectional causality between the unemployment rate and the real output. A 1% increase in the real output for the difference model leads to a decrease in the unemployment rate by about 1.6%. Thus, the empirical results of our paper exhibit the relevance of economic policy decisions regarding employment for the tunisian case.