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The magnitude of short run variations in unemployment induced by output shocks is influenced, inter alia, by a variety of supply-side characteristics of the economy in question. This paper argues that one important element of those characteristics is a country’s ‘distance ’ from the technological frontier. Using both, a panel interaction model and a panel threshold model, we show that the value of the coefficient linking short run variations in unemployment to output changes (often known as the Okun’s Law Coefficient) is influenced by the technological distance of a country to the world efficiency frontier. Specifically, the larger the distance to the frontier, the larger the impact of real GDP movements on unemployment rate variations. Moreover, the magnitude of this impact is both considerable and exhibits wide variation between countries; decomposition of the total derivatives of unemployment with respect to GDP shows that the technology-induced share of this derivative is around 20% for Norway and Denmark countries (close to the frontier) and around 40% for Greece (which has the largest technological gap). Traditional growth enhancing demand side policies should thus go in hand with adequate supply side policies in order to stabilise or reduce the unemployment rate in technologically advanced countries.

[Abstract unavailable]

International audience; This paper examines Okun's Law using a spatial panel approach on NUTS 3 data for Great Britain over the period 1985–2011. The basic specification used as a starting point for the spatial analysis is the relationship between real output growth and unemployment rate changes. This is extended to incorporate spatial lags, to test for the presence of commuting effects, and to accommodate spatial residuals dependence. We estimate various spatial panel models, controlling for heterogeneity across areas, and find consistent evidence of a significant Okun's coefficient. Results also show that spillover effects from labour mobility and interregional linkages matter and have important implications for the validity of the empirical law.

Good land management strategies are known to play an important role in improving agricultural production. There lacks empirical studies that have evaluated the contribution of fence as a productive investment in Kenya. Fencing was treated as a productive input in the production function alongside capital, labour and land. Cross-sectional primary data is used to achieve the objectives of the study. The Cobb-Douglas (CD) specification was used in measuring the contribution of fence to production and in measuring its role in the marginal productivity of labour, land and capital in semi arid Kenya. Ordinary least squares (OLS) regression results indicated that fencing improves agricultural production and that it improves the marginal productivity of land. The policy implication is that since fence has led to a series of positive benefits, there is need for the government to recognize the positive impact of fence and empower those communities who would wish to fence their land.

The paper considers the use of artificial regression in calculating different types of score test when the log-likelihood is based on probabilities rather than densities. The calculation of the information matrix test is also considered. Results are specialised to deal with binary choice (logit and probit) models.

International audience; This paper seeks to identify whether there is a representative empirical Okun's law coefficient (OLC) and to measure its size. We carry out a meta-regression analysis on a sample of 269 estimates of the OLC to uncover reasons for differences in empirical results and to estimate the 'true' OLC. On statistical (and other) grounds, we find it appropriate to investigate two separate subsamples, using respectively (some measure of) unemployment or output as dependent variable. Our results can be summarized as follows. First, there is evidence of type II publication bias in both subsamples, but a type I bias is present only among the papers using some measure of unemployment as the dependent variable. Second, after correction for publication bias, authentic and statistically significant OLC effects are present in both subsamples. Third, bias-corrected estimated true OLCs are significantly lower (in absolute value) with models using some measure of unemployment as the dependent variable. Using a bivariate MRA approach, the estimated true effects are −0.25 for the unemployment subsample and −0.61 for the output subsample; with a multivariate MRA methodology, the estimated true effects are −0.40 and −1.02 for the unemployment and the output subsamples respectively.

How does technical change influence the size of the Okun’s Law coefficient? Using a nonlinear version of Okun’s Law augmented with technical change and technological distance, we show that the impact of output movements on unemployment variations is influenced by the imitation or innovation origins of technical change

This paper seeks to identify whether there is a representative empirical Okun’s Law coefficient (OLC) and to measure its size. We carry out a meta regression analysis on a sample of 269 estimates of the OLC to uncover reasons for differences in empirical results and to estimate the ‘true’ OLC. On statistical (and other) grounds, we find it appropriate to investigate two separate subsamples, using respectively (some measure of) unemployment or output as dependent variable. Our results can be summarized as follows. First, there is evidence of type II publication bias in both sub-samples, but a type I bias is present only among the papers using some measure of unemployment as the dependent variable. Second, after correction for publication bias, authentic and statistically significant OLC effects are present in both sub-samples. Third, bias-corrected estimated true OLCs are significantly lower (in absolute value) with models using some measure of unemployment as the dependent variable. Using a bivariate MRA approach, the estimated true effects are -0.25 for the unemployment sub-sample and -0.61 for the output-sub sample; with a multivariate MRA methodology, the estimated true effects are -0.40 and -1.02 for the unemployment and the output-sub samples respectively.

This chapter

A large number of papers have considered the question of whether the European Union (EU) is an optimal currency area by analysing either the dispersion (and/or the correlation) of observable variables such as output, output per head, and GDP growth rates or the dispersion (and/or the correlation) of unobservable variables such as demand and supply shocks. This approach typically leads to a division of countries between a core and a periphery. We move to a quantitative approach that focuses on asymmetry stemming from differences in the way countries react to symmetric euro area shocks. Without convergence of macroeconomic “parameters” representative of the nature of adjustment mechanisms, even a common shock to the union can lead to different macro-economic consequences across the EU members and, eventually, to the need for more or less co-ordinated specific policies. In this paper, we test for the presence of convergence of the Okun’s Law coefficient (OLC hereafter). This constitutes one of the main macro-economic parameters underlying the sensitivity of unemployment variations to fluctuations in economic activity.

In this paper, we examine whether evidence is consistent with convergence of the Okun’s Law coefficient (OLC) among several alternative groupings of European economies. A two step empirical strategy is employed. The first step obtains rolling regression estimates of the OLC for individual European countries. In the second step, we examine how the crosscountry variance of the OLC evolves over the decade until 2002 in the selected country groupings. We find evidence consistent with convergence of the OLC among northern European countries, and among countries with centralised wage bargaining, but an absence of convergence in other country groups.

In the last issue of the Commentary, we forecast that an up-tum in the business cycle (in terms of the seasonally adjusted Scottish output index for production industries, Divisions 1-4 of the 1980 SIC) would occur in the third quarter last year, indicating technically an end to the current recession. This is confirmed by the latest official data, published by the Scottish Office on 11, February 1992. The present forecasting period extends to the second quarter of 1993. In making the Scottish forecasts, the output index series for the UK production industries is used as the exogenous data input. We calculate the UK index for the present forecasting period on the basis of the National Institute's projections. The output equation on which the forecasts are based is re-estimated using the revised and extended official data on the UK and Scottish output series.

This brief article provides an overview of the economic outlook based on the latest economic data. Economic prospects over the last quarter have not improved, and have shown signs of worsening in some areas. Recovery from the persistent and lengthy recession is unlikely to become apparent until the second half of this year. Provisional figures for the fourth quarter of last year indicate that UK gross domestic product fell by 0.3%. Unless subject to an unusually large upward revision, this means that non-oil GDP has fallen for six successive quarters, the longest recession since the Second World War. While still less deep overall than the 1979-81 recession, the extent of the present slump should not be underestimated. For example, in 1991 GDP declined by 2.5%, the largest decline in a single calendar year for sixty years. Investment spending has also been badly hit over the last year; capital expenditure by UK manufacturing industry fell by 15% in 1991, and was still declining in the final quarter of last year. The cumulative amount of outstanding consumer credit (excluding bank loans) has fallen every month from August last year to January, and retail sales are struggling to show any signs of upward movement.

The recession in non-oil GDP has continued for six quarters with the real value of output falling by just under 4% since the second quarter of 1990. The present recession is therefore the longest since the Second World War, although the fall is still not as rapid, or as deep, as in the 1979-81 recession where the decline in non-oil GDP from peak to trough occurred over five quarters and amounted to 6.2%. Considerable uncertainty exists over the course of demand over the next few months, with consumption unlikely to exhibit strong growth. The likely outturn for GDP growth during 1992 is for an increase of no more than 1%. Macroeconomic trends, earnings and productivity, and unemployment levels are also analysed.

This detailed article provides an analysis of key Scottish economic trends based on recent data. The forecast of quarterly movements in the seasonally-adjusted Scottish output index for production industries (Divisions 1-4 of the 1980 SIC) is based on the short-term model of the Scottish economy, details of which are contained in the Briefing Paper in the September issue of the Commentary. Note that here the classification of production industries excludes construction but includes SIC Class 13 (oil and gas). As a reminder, the current Scottish output is modelled as driven by the current and past UK outputs, and also by the past Scottish output. In making the Scottish forecasts, the exogenous data on the UK output index for the forecast period are derived from the National Institute's projections. Since the quarterly forecasts for the UK output beyond the fourth quarter of 1992 are not yet available, the present forecasting period remains the same as that in the last issue. However, the output equation is reestimated using the revised official data on the UK and Scottish output series. Therefore, the difference between the present forecasts and that in the last issue is totally due to data revision.

With the provisional estimate of a 0.3% increase in GDP in the third quarter the recession has technically come to an end. However, the upturn is very weak and hesitant. The rate of recovery over the next two quarters will be largely governed by the extent to which consumers raise spending by taking on new credit.

This brief article provides an analysis of key world economic trends based on recent data. In the second quarter of 1991 there was a further sharp decline in GDP growth among the leading industrialised countries. Comparing the second quarter of 1991 with the corresponding period last year, average growth in the G7 countries was 0.6%, compared with 1.1% in the year to the first quarter. A sharp decline in GDP growth was recorded in Germany, and the UK continued to perform most poorly among its G7 counterparts. Individual country growth rates were as follows (Q2 1991 on Q2 1990): Canada -1.5%; US -0.9%; Japan 5.0%; France 1.6%; Germany 4.2%; Italy 0.7% (year to March); UK - 3.6%. Despite the continuing slackness in GDP growth, there is some evidence that industrial production in the industrialised countries picked up in the second quarter following a very sluggish first quarter. In the year to July industrial production in the OECD declined by 0.3%, and by 0.5% for the G7 countries. In both cases this is a considerably slower rate of decline than in the year to April. The most striking feature, however, is the virtual stagnation of industrial output in Japan and its rapid slowing in Germany, while most other G7 countries unproved their rate of industrial output. Individual countries as follows (year to July unless otherwise stated): Canada -4.4%; US -2.1% (August); Japan 0.3% (August); France 0.2%; Germany 2.0% (August); Italy - 3.6%; UK -1.8%.

In common with its UK counterpart, the Scottish economy appears to have reached a turning point during the third quarter of this year. However, the indications are that recovery, particularly in manufacturing, will be very sluggish, with little evidence of a clear recovery until well into 1992. In the second quarter of 1991 the index of production and construction for Scotland fell by 0.3%, resulting in an annual decline of 4.0% compared with 3.7% for the UK. In manufacturing, the decline in the Scottish index during the quarter was 0.4% compared with 0.7% for the UK, the third successive quarter in which the fall in Scottish manufacturing output has been less than that of the UK. Nevertheless, Scottish manufacturing output fell by 7.5% in the year to June while that of the UK declined by only 3.9%; this is a result of the sharp peak and slump which apparently occurred in Scotland between the first and second halves of 1990.

[Abstract unavailable]

As this commentary reveals, economic growth continued to decrease for most major industrialised countries in the second quarter of 1990. GDP growth in the G7 countries in the year to June actually accelerated fractionally to 2.8% (from 2.6% in the year to March), but this was almost totally due to the very rapid growth of the Japanese economy; year on- year growth in Japan stood at 7.5% in June. Most other G7 countries saw growth slow quite sharply in the second quarter. This was especially the case in the US, where annual growth slowed to 1.6%, barely half the level achieved in 1989. Growth rates for the remaining G7 countries (excluding Italy) were as follows: Canada 1.4; France 2.1%; Germany 3.4%; UK 2.6%. Industrial production in the major industrialised countries showed a fairly sharp rise in the second quarter of 1990, increasing at an annual rate of 2.2% for both the G7 and the OECD as a whole.

Since the beginning of 1990 the Scottish economy has shown a marked resilience to the downturn which has recently become so marked in the southern part of the United Kingdom. Arguments about the reliability of certain data notwithstanding, there is a considerable array of appropriate statistics which make a strong case when considered together. Despite an apparent slump in the second quarter, the Scottish index of production and construction showed annual growth in the year to June of 4.8%, almost five times that of the UK. In manufacturing, provisional estimates indicate annual growth of 6.2% compared with UK growth of 1.6%. Evidence from the Scottish Chambers' Business Survey and from more anecdotal evidence indicate that throughout much of the year consumer spending in Scotland has remained more buoyant than for the UK as a whole, and house prices have continued to show modest gains in Scotland compared with marked falls in southern Britain. However, perhaps the most impressive performance has come in the labour market, an area in which Scotland has traditionally fared relatively poorly. Scottish unemployment has continued to decline modestly for fully seven months after UK unemployment began to rise in April, and while UK vacancies fell by one-third in the year to October the corresponding Scottish decline in vacancies was only 5%. Scottish unemployment was still 1.9 percentage points above that of the UK in October, but the gap has narrowed considerably over the last year.

The growth of Gross Domestic Product slowed rapidly for the major industrialised countries in the last quarter of 1989. As this paper describes, GDP growth for the G7 countries averaged just 0.5 between October and December; for the whole of 1989 growth averaged 3.3% compared with 4.5% in 1988. Most rapid growth during 1989 was experienced in Japan (4.9%), with the lowest being the UK (2.1%). The remaining G7 countries (excluding Italy) were as follows: France 3.4%; West Germany 3.9%; Canada 2.87%; USA 3.0%. There was also some slowing down in industrial production in the last quarter of 1989, and for the year as a whole OECD countries averaged 2.6% growth. In January industrial production fell in four of the G7 countries and was static in another; only France and Japan showed slight increases. The result of this was that industrial production in the G7 countries rose by just 1.3% in the year to January, just half the annual rate of the year to October 1989. In the twelve months to January growth rates among the G7 varied from West Germany and Japan at 4.6% and 3.4% respectively to Canada at -0.2%.

The growth of demand is almost certainly still too high in relation to supply for there to be much improvement in both the rate of inflation and the balance on current account over the next few months. Interest rates are in consequence likely to remain high and at present levels for the remainder of this year, unless a decision to enter the exchange rate mechanism of the EMS is taken within the next few months.

With the continuation of a policy of high interest rates as a method of reducing consumer demand, Scotland continues to show clear signs of outperforming the UK. Confidence in manufacturing, and especially in retailing, has recovered over recent months because the expected downturn has failed to become reality as quickly as had been expected. The UK economy remains more resilient to high interest rates than expected by the Government, and increasingly worries about recession are giving way to concerns over the underlying rate of inflation.

[Abstract unavailable]

It is not the intention of this paper, to investigate the consequences of global warming. I assume on the basis of the best information available (represented by the papers of the 1988 Toronto Conference, for example) that the human welfare costs of unhindered global warming will be so high (if not for this generation, then certainly for the next and later ones), that action will have to be taken both to prevent some additional warming and to adapt to warming that will already have occurred. Furthermore, the magnitude of global warming damage costs will be so high that the majority of technically feasible solutions (or at least ameliorative measures) will generate positive net returns to society. If these axioms are correct, then there is no need to assess each policy proposal for economicviability. That does not mean, however, that every feasible project to limit global warming should be undertaken. Such projects are costly, and so it is important to choose a package of measures that is the least costly for achieving any target level of limitation. In other words, we should choose cost effective measures. One aim of this paper is to provide some insight into how this cost effectiveness may be assessed.

The rate of growth of output continues to decline but the rate of slowdown of domestic demand appears to have eased. Prospects for inflation have worsened. A tightening of fiscal policy offers the best guarantee of minimising further inflationary pressure, allowing base rates to come down sooner than presently appears to be likely.

The economies of the major industrialised countries have proved quite resilient to the steady tightening of monetary conditions which occurred during 1988 and 1989. Growth in the OECD countries is now expected to be just below 3% for 1990, with Japan and West Germany being the main growth economies. There is some concern about underlying inflationary pressure, however. Although OECD inflation is expected to remain relatively steady at around 4.5% during 1990, large wage settlements could undermine this projection. The prospect of widening trade surpluses in West Germany and Japan, coupled with the recent weakness of the Yen is an area of some concern, especially if there is any hint that disruption in the financial markets could spread beyond Japan.

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The measures included in this year's budget have not led to the significant tightening of the fiscal stance which was widely expected. The overall tax burden was marginally increased, mainly through increases in excise duties, with virtually no change occurring in direct taxation. Presumably the Chancellor feels that the continuing policy of high interest rates is sufficient on its own to curb domestic demand, and did not want to increase the risk of recession by tightening fiscal policy just as the economy begins to slow down. The evidence on domestic demand remains mixed, although Mr Major can take some encouragement from the February statement of the Committee of London and Scottish Bankers.

The Scottish economy continues to perform well. Industrial production remains buoyant, although it is now clear that production has been growing at a lower rate than earlier statistics suggested. In the labour market, the improved output performance has yet to be reflected in a significant increase in net employment. Short term prospects for output growth are nonetheless favourable. But beyond the next three months, the outlook for the Scottish economy depends largely on the outcome of government actions to moderate the pace of growth of UK domestic demand. Policy action to date leaves some cause for concern. Swingeing increases in interest rates are questionable in terms of both the nature and the timing of their effects.

The Scottish economy is standing up surprisingly well to last year's interest rate rises. Retailing and wholesaling are showing signs of reduced optimism but sales remain strong if below expectations. Manufacturing and Construction remain buoyant. Investment is particularly strong. However, with demand in both the World and British economies falling during 1989, Scotland should be similarly affected. But there are indications that Scottish economic performance might hold up better to such a downturn than on previous occasions. Nevertheless, the outlook does very much depend on whether the current inflationary pressure in Britain can be reduced without the economy being tipped into recession. The probability of a stagflationary outcome appears somewhat greater than when we last reported.

With the Inauguration of the quarterly Scottish Business Survey (SBS) in October 1984 there are now two regular up-to-date indicators of trends in the Scottish industrial sector. The combination of the new survey and the long-standing CBI Industrial Trends Survey provides a comprehensive assessment of trends in Scottish industry. The two data sources are essentially complementary, but there are important differences between them.

Between them the Scottish Chambers' Business Survey (SCBS) and the CBI's Industrial Trends Survey provide a reasonable guide to current and recent trends in the Scottish economy. Both surveys are carried out on a quarterly basis with results being derived from the responses of Chambers of Commerce and CBI members, respectively.

The improvements in output, employment and unemployment, appear to be continuing. The growth in consumer spending may be beginning to slacken, although in view of the underlying buoyancy in its key determinants and the eventual effects of the Budget changes, this judgement may be a little premature. Investment is expected to rise substantially above 1986 levels by the end of the year. Exports appear also to be on a rising trend. The main cause for concern over the coming months is whether Britain's domestic supply capacity can accommodate a sustained increase in aggregate demand and whether lower interest rates will add to domestic demand pressures in a situation when monetary conditions are already relatively lax.

The performance of the main economies has been surprisingly buoyant in recent months. It appears likely that the growth of the world economy in 1988 will be nearer 4% than the 3% originally predicted. The balance of demand is shifting in favour of investment. The growth of investment is sufficiently strong generally to be described as a "boom". There has been some further improvement in international trade imbalances since we last reported. But the improvement is being frustrated by the recent appreciation of the dollar, the depreciation of the D-Mark, and the stronger rate of growth of the US economy.

The seven largest OECD countries showed GDP growth, in real terms, of 0.35% in the second quarter of the year, approximately the same as for the OECD as a whole. France displayed the highest quarterly rise (0.6%), with West German output rising by half of that, and GDP in Japan falling by 0.9% in the second quarter (see Japanese economy below). As this paper reveals, these figures are indicative of the continuing slowdown in growth in the major industrialised countries, although there are still no clear signs of a descent into recession. Inflation remains as much of a threat as recession. In the twelve months to September the average inflation rate in the OECD was 5.0%, with the largest seven countries showing an average for the twelve months of 4.2%; the UK had the highest rate (7.6%) and Japan the lowest (2.6%).

Recent developments in the UK economy suggest that the slowdown of growth in 1985 may only have been a temporary phenomenon. External events are continuing to play a significant role. Yet it is the trends within the domestic economy that are a major source of unease. Underlying inflationary pressures continue to operate via the relatively fast growth in average earnings, low productivity growth, the growth of private sector liquidity and the recent significant decrease in the value of sterling. An increase in the growth of non-oil imports adds to fears for the current account of the balance of payments. Perceptions of uncertainty in Government policy particularly towards the exchange rate are a continuing cause for concern.

Recent developments in the UK economy suggest that the slowdown of growth in 1985 may only have been a temporary phenomenon. External events are continuing to play a significant role. Yet it is the trends within the domestic economy that are a major source of unease. Underlying inflationary pressures continue to operate via the relatively fast growth in average earnings, low productivity growth, the growth of private sector liquidity and the recent significant decrease in the value of sterling. An increase in the growth of non-oil imports adds to fears for the current account of the balance of payments. Perceptions of uncertainty in Government policy particularly towards the exchange rate are a continuing cause for concern.

Growth in the world economy remained strong at the end of last year producing an outturn of around 4% for 1988 as a whole. By the turn of the year there were indications that the down-turn expected in 1989 was already starting to occur in some countries. Yet indications that growth in the world economy may be turning down have not been sufficient to dampen inflationary pressure, nor expectations of a deterioration in inflation rates during 1989. Monetary and fiscal policy have been tightened in several key countries in response to inflationary expectations. This general tightening of policy is expected to contribute to a lowering of world economic growth during 1989 to around 3% and to a moderation of inflation in 1990, but will do little to accelerate the removal of the world's financial imbalances.

The rate of growth of output in the British economy appears to be slowing down in line with earlier expectations for 1988. The rate of growth of domestic demand remains strong. Manufacturing investment is forecast to rise to record levels during 1988 and there is little evidence that the growth in consumer demand is slackening. The slow-down in the rate of growth is therefore largely a reflection of decline in the external demand for exports and buoyant import growth. The progressive upward movement of sterling in recent months and the evidence of increasing inflationary pressure, has placed the Government in a significant policy dilemma. Recent events are a clear illustration that interest rate policy cannot be used both to target the exchange rate and to regulate the expansion of domestic money and credit.

The prospects for output growth continue to be favourable. However, since the publication of the May Commentary concern has increased about the inflationary consequences of overheating and the prospects for the balance of payments during the remainder of the year. The government's response in raising base rates can probably be justified given the recent slight downward movement of sterling, but future policy action to moderate the rate of expansion should focus on the public sector borrowing requirement.

Evidence is mixed on whether growth in the economy is beginning to turn down. Nevertheless, the growth of GDP is forecast to fall from last year's high of 4.5% to 2.5% this year. Inflationary expectations are the most immediate cause for concern. But following the Budget there is concern that a relatively restrictive fiscal stance may bear down too heavily on output and employment during the next year.

Growth in the world economy appears to be continuing at a brisk rate. Recent forecasts suggest that output should expand by about 3% this year compared with 3.IX in 1987. The outlook therefore appears to be more favourable than when we last reported; a reflection of the limited impact to date of the October stock market crash. Some progress has been made in adjusting the key trade imbalances but progress remains slow.

The buoyancy of the main economies continues. Investment now appears to be the principal driving force behind the current robust performance of the world economy. Growth of GNP is generally expected to be around 4% this year, a full one percentage point, and more, higher than expectations at the beginning of the year. Nevertheless, growth should decline next year due to a tightening by key governments of both fiscal and monetary policies in response to increasing inflationary pressure.

Growth appears to be faltering in the world economy due to the deflationary effects of the appreciation of the Yen and D-Mark on the Japanese and West German economies. Continuing trade imbalances and exchange rate instability reflect the absence of effective action to reduce the large US budget deficit and secure a monetary and fiscal policy induced expansion in the surplus countries.

Between them the Scottish Chambers' Business Survey (SCBS) and the CBI's Industrial Trends Survey provide a reasonable guide to current and recent trends in the Scottish economy. Both surveys are carried out on a quarterly basis with results being derived from the responses of Chambers of Commerce and CBI members, respectively. While the two sources are complementary in nature there do exist important differences between them.