Is the current economic performance compatible with the projected NDP unemployment target?

Ngubane, Mbongeni Zwelakhe; Mndebele, Siyabonga; Ilesanmi, Kehinde D.
A icle
Is he cu en economic pe o mance compa ible wi h he
p ojec ed NDP unemploymen a ge ?
Cogen Economics & Finance
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Ngubane, Mbongeni Zwelakhe; Mndebele, Siyabonga; Ilesanmi, Kehinde D.
(2024) : Is he cu en economic pe o mance compa ible wi h he p ojec ed NDP unemploymen
a ge ?, Cogen Economics & Finance, ISSN 2332-2039, Taylo & F ancis, Abingdon, Vol. 12, Iss. 1,
pp. 1-14,
h ps://doi.o g/10.1080/23322039.2024.2350699
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/321489
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h ps://c ea i ecommons.o g/licenses/by/4.0/
Cogen Economics & Finance
ISSN: 2332-2039 (Online) Jou nal homepage: www. and online.com/jou nals/oae 20
Is he cu en economic pe o mance compa ible
wi h he p ojec ed NDP unemploymen a ge ?
Mbongeni Zwelakhe Ngubane, Siyabonga Mndebele & Kehinde D. Ilesanmi
To ci e his a icle: Mbongeni Zwelakhe Ngubane, Siyabonga Mndebele & Kehinde D.
Ilesanmi (2024) Is he cu en economic pe o mance compa ible wi h he p ojec ed
NDP unemploymen a ge ?, Cogen Economics & Finance, 12:1, 2350699, DOI:
10.1080/23322039.2024.2350699
To link o his a icle: h ps://doi.o g/10.1080/23322039.2024.2350699
© 2024 The Au ho (s). Published by In o ma
UK Limi ed, ading as Taylo & F ancis
G oup.
Published online: 10 May 2024.
Submi you a icle o his jou nal
A icle iews: 803
View ela ed a icles
View C ossma k da a
Ci ing a icles: 1 View ci ing a icles
Full Te ms & Condi ions o access and use can be ound a
h ps://www. and online.com/ac ion/jou nalIn o ma ion?jou nalCode=oae 20
GENERAL & APPLIED ECONOMICS | RESEARCH ARTICLE
Is he cu en economic pe o mance compa ible wi h he p ojec ed
NDP unemploymen a ge ?
Mbongeni Zwelakhe Ngubane, Siyabonga Mndebele and Kehinde D. Ilesanmi
Depa men o Economics, Uni e si y o Zululand, KwaDlangezwa, Sou h A ica
ABSTRACT
This s udy in es iga ed he ela ionship be ween unemploymen a es and economic
g ow h, known as Okun’s Law. The non-linea au o eg essi e dis ibu ed lags (NARDL)
model was employed using qua e ly ime se ies da a sampled om 2000Q1 o
2021Q4. In his model, unemploymen was used as he dependen a iable, whe eas
ou pu , exchange a e, and consume p ices index (CPI), we e used as explana o y a -
iables, and we e decomposed in o posi i e and nega i e pa ial sums o cap u e
asymme y in hei e ec s on unemploymen . The indings o his s udy p o ided e i-
dence o asymme y in he e ec o all he explana o y a iables in he long- un, and
a nega i e ela ionship is ound be ween ou pu and unemploymen . Howe e ,
unemploymen was ound mo e elas ic o nega i e shocks in ou pu han posi i e
shocks. This implies ha in he Sou h A ican labou ma ke , employe s a e quicke o
e ench when he economy is in ecession and slowe o abso b when he economy
is in expansion. The e o e he 6% unemploymen a ge by 2030 appea s hypo he ical
o Sou h A ica, conside ing i s cu en posi ion. In his ega d, his s udy ecom-
mends Sou h A ican policymake s adjus hei labou laws o be mo e lexible, so
ha employe s do no subs i u e mo e labou wi h capi al in he p oduc ion p ocess.
IMPACT STATEMENT
This yea 2024 ma ks wel e yea s since he Na ional De elopmen Plan (NDP) goals
we e o mula ed in Sou h A ica. I is wi h deep sadness ha he socie y is s ill cha ac-
e ised by deep po e y, ele a ed le els o c ime and poo li ing s anda ds. The s imu-
lus packages employed by he Sou h A ican go e nmen and policy unce ain y seem
o be no wo king owa ds he di ec ion o achie ing he p ojec ed na ional de elop-
men a ge s. I was necessa y o conduc such an in es iga ion o de e mine i he
cu en economic expe ience could po en ially s ee Sou h A ica owa ds he ajec-
o y o achie ing he NDP goals.
ARTICLE HISTORY
Recei ed 4 Ap il 2023
Re ised 23 Ap il 2024
Accep ed 29 Ap il 2024
KEYWORDS
Unemploymen ; GDP
g ow h; Okun’s law; NDP
2030 and NARDL; ime
se ies; Sou h A ica
REVIEWING EDITOR
Ch is ian Nsiah, Baldwin
Wallace Uni e si y, Uni ed
S a es
SUBJECTS
Economics; His o y o
Economic Though ; Finance
1. In oduc ion
The beginning o he yea 2022 ma ked a decade since he o mula ion o he Na ional De elopmen
Plan (NDP) o achie e mac o-economic objec i es, amongs which a e low unemploymen and economic
g ow h. The wo cen al objec i es o he NDP ha e no been d i ing owa ds he p ojec ed a ge s.
Unemploymen has been s ubbo nly high causing a chao ic socie y cha ac e ised by po e y, c ime, and
co up ion. Acco ding o Mosika i (2013), unemploymen p oduces unwan ed si ua ions o become like
pe manen ci izens o he coun y. These condi ions include a low le el o li ing s anda ds, psychological
s ess, and loss o human eedom and digni y.
On he o he hand, ib an policies wi h a common goal o s imula e economic pe o mance and
educe unemploymen ha e been implemen ed in Sou h A ica. These policies include he Accele a ed
and Sha ed G ow h Ini ia i es o Sou h A ica (ASGISA) and Gea Employmen and Redis ibu ion
(GEAR). Economic g ow h has emained a ound 3.48% on a e age o SA be ween 2000 and 2010 highe
han 1.15% on a e age be ween 2011 and 2020. Concu en ly, he unemploymen a e was 28.20% on
CONTACT Siyabonga Mndebele [email p o ec ed] Depa men o Economics, Uni e si y o Zululand, KwaDlangezwa,
P i a e Bag X1001, KwaDlangezwa, 3886, Sou h A ica
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup.
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2350699
h ps://doi.o g/10.1080/23322039.2024.2350699
a e age in he yea s be ween 2000 and 2010 and dec eased in he la e decade as i d i ed o 26.93%
on a e age. The s a us quo o exis ing li e a u e p oposes ha economic g ow h ough o inc ease o a
ce ain le el o educe he unemploymen a e. This no a ion is known as Okun’s Law, mos s udies such
as Madi o and Khumalo (2014), Mihajlo ic and Fedaje (2021), S ungwa and Tozamile (2021), Pasa a and
Ga idzi ai (2020), o coun ew, ha e alida ed Okun’s Law in SA. In his ega d, mos economies o he
wo ld s i e o s imula e high ou pu g ow h and abso b he a ailable labou o ce in he p oduc ion
p ocess, o educe unemploymen . On he o he hand, he e is undeniable e idence om exis ing li e a-
u e ha economic g ow h on some occasions may be posi i ely ela ed o unemploymen a es in SA
(Ab aham & Nosa, 2018; Bakhshi & Eb ahimi, 2016; Tenzin, 2019).
The abo e disag eemen in he li e a u e emains he backbone o his s udy. The main aim o he
s udy is o add alue o he cu en deba e and li e a u e by delibe a ely in es iga ing he nexus
be ween unemploymen and economic g ow h in SA employing he Nonlinea Au o eg essi e
Dis ibu ed Lagged model (NARDL). This model will allow us o cap u e po en ial asymme y in his
nexus. Th ough his, we will be able o es ablish i he cu en economic pe o mance is s ee ing
unemploymen owa ds i s p ojec ed a ge s, by e alua ing he magni ude o unemploymen esponse
in nega i e and posi i e shocks on economic g ow h, espec i ely. The s udy also conside s he e ec o
p ices and exchange a e luc ua ions, since cu ency a angemen s and p ice changes o m a huge pa
o economic pe o mance. In la ion ha ms unemploymen , and i c ea es an uns able en i onmen o
g ow h, while exchange a es emain a shock abso be and i e lec s ha since SA is an open eme ging
economy ha is ulne able o ex e nal shocks. These a iables ha e been included in se e al s udies
when in es iga ing he ela ionship be ween unemploymen and economic g ow h, including Bakhshi
and Eb ahimi (2016), Kocaa slan e al. (2020) and Nyahokwe & Ncwadi (2013). Howe e , he highligh ed
s udies abo e do no p o ide he same emphasis wi h ega ds o NDP and a ge ed le el o unemploy-
men ; a he hey a e in e es ed in he nexus be ween he wo main a iables unde in es iga ion. The
es o his pape p oceeds as ollows: Sec ion 2 is he e iew o p e ious s udies. Sec ion 3 p o ides he
econome ic echniques applied o es ima ion and Sec ion 4 o e s a discussion o he esul s.
Ul ima ely, he conclusion and policy ecommenda ion o he s udy a e highligh ed in Sec ion 5.
2. Li e a u e e iew
The e iewed p e ious s udies in his ield we e in o med by ew economic heo ies, one o hem ha ing
been indica ed ea lie is he Okun’s Law. The no ion o his heo y ad oca es ha g ow h should g ow
abo e i s po en ial le el by 3% o be able o educe unemploymen a e by 1%, Bankole and Fa ai
(2013) and Elshamy (2013). P achowny (1993), indica ed ha bo h highligh ed pe cen ages a e consis -
en i g ow h akes place h ough labou -in ensi e indus ies. G ow h can occu h ough capi al-in ensi e
indus ies whe e echnological shocks a e domina ing. The e o e, conce ning his cu en s udy
Sil apulle e al. (2004), is ele an o add ess Okun’s Law in asymme ic lenses. The au ho highligh s he
impo ance o assuming an asymme ic connec ion o ou pu on unemploymen . The ela ionship dis-
cussed he e will be ou lined in he i s pa o he heo e ical model using ele an Equa ions (1,1a and
1b). Fi s , he heo y o asymme ic Okun Law asse s ha i he e exis s a non-linea ela ionship
be ween ou pu and unemploymen , he unemploymen will ha e a he e ogenous eac ion o ou pu
du ing di e gen phases o he business cycle namely expansion and con ac ion. Equally impo an is
ha i may ela e o he Philips cu e conce ning he agg ega e supply cu e.
Wide ange o s udies ha ha e del ed o an in es iga ion o alida e he exis ance o Okun’s heo y
o di e en economies, including SA. Fo example, Mazo odze and Siddiq (2018) in es iga ed he nexus
be ween his wo a iables whe e hey used he nonlinea Au o eg essi e dis ibu ed lags (NARDL)
model. The s udy ound a nega i e ela ionship be ween unemploymen and ou pu ; u he mo e, du -
ing he ecession he unemploymen a e inc eased by 10.3% compa ed wi h dec easing unemploymen
du ing he eco e y. The s udy has conside ed he da a sample ha anged om 1994Q1 o 2017Q4.
These esul s we e also alida ed by a g ea deal o he s udies such as hose o Phi i (2018); Mihajlo ic
and Fedaje (2021); Khalid e al. (2021); Lubbok e al. (2022); Yasmin e al. (2020) and Se e and Tche eni
(2020). The abo e indings indica e ha du ing he downswing o he business cycle, he economy is a
2 M. Z. NGUBANE ET AL.
subs an ial isk o incu high unemploymen a es which may ha dly be eco e ed du ing he expansion
phase, especially i i las s sho e han he ecession.
Tenzin (2019) on he o he hand, has ound a posi i e ela ionship be ween ou pu and unemploy-
men a es in bo h he sho - un and long- un o SA. The s udy used he ARDL model wi h he da a
obse ed be ween 1998 and 2016. Fo he same economy, simila sen imen s we e sha ed by Ab aham
and Nosa (2018). The same indings we e e i ied by Bakhshi and Eb ahimi (2016), in I an. Ka umo
(2019) de i ed simila indings in Kenya whe e economic g ow h was linked o you h unemploymen .
The s udy elied on simple O dina y Leas Squa e (OLS) and G ange causali y es s o alida e he posi-
i e ela ionship be ween he a iables. O he s udies such as Hlongwane and Daw (2021) ha e di e ged
in e ms o he esul s o he cu en deba es. The s udy used he ARDL model and he G ange causali y
es wi h da a obse ed be ween 1980 and 2020 and ound no ela ionship be ween he a iables in SA.
Simila sen imen s we e sha ed by Con eh (2021) in Libe ia.
A he beginning o he s udy, i was highligh ed ha he SARB pu sued a ge ing in la ion. This a i-
able should ha e a nega i e ela ionship wi h unemploymen based on he economic heo y alluded o
by he Philips cu e. Ve meulen (2017) has alida ed he nega i e ela ionship be ween unemploymen
a es and in la ion a es in SA. Based on he esul s, he ecommenda ion was ha Sou h A ica ough o
adop a dual a ge ing o bo h in la ion and unemploymen a es. Simila sen imen s we e also aised
by Maduku and Kasee am (2018); his implies he alidi y o low unemploymen , especially in SA.
Simila ly impo an , he in e es a es channel in luences g ow h by in luencing high in es men by
i ms, i i is a a low a e age le el. Nyahokwe and Ncwadi (2013) indica ed ha in e es a es ha e a
posi i e e ec on unemploymen in he sho - un. These indings we e de i ed om ec o au o eg es-
si e VAR and gene al au o eg essi e condi ional he e oscedas ici y (GARCH) models ha we e used in
he s udy. The e o e, wi h ega d o in la ion and in e es a es, he esul s indica e mone a y policy con-
duc has an impo an in luence on he Sou h A ican economy.
Simila ly impo an he exchange a es sys em may be ixed o lexible and i also signi ies ha he
economy is open o in e ac ing wi h o he economies. A he same ime, economic ac i i ies such as
g ow h and unemploymen may be a ec ed by he exogenous ac o s ansmi ed by he exchange
a es channel. Fo example, Nyahokwe and Ncwadi (2013) has indica ed ha high exchanges a es ola-
ili y leads o an inc ease in unemploymen a es by 8%, while dep ecia ion o he cu ency did no
induce high unemploymen a es be ween 2000 and 2010. The s udy elied on esul s in e p e ed om
VAR and GARCH models. Usman and Elsalih (2018) ha e come o a simila conclusion, bu he s udy
used he NARDL model. Simila ly impo an , Bakhshi and Eb ahimi (2016) indica ed ha he e is a nega-
i e ela ionship be ween he app ecia ion o he cu ency and unemploymen a es in I an. Simila ind-
ings we e also co obo a ed by (Kocaa slan e al., 2020; Nyahokwe and Ncwadi, 2013).
3. Me hodology
The use o nonlinea models is bocoming p e alen in economic modelling. The applica ion o he
NARDL o s udy economic g ow h and unemploymen can be aced om he wo k o Mazo odze and
Siddiq (2018), Mikajlo ic and Fedaje (2021) and Phi i (2018). The a ionale behind he applica ion o he
NARDL is ha he esponse o a dependen a iable is dis inguished in o wo pa s: i s ly, he esponse
o he di ec ion o a shock (posi i e o nega i e) and las ly on he magni ude o a shock (big o small).
The e o e, such a model is mo e applicable in his s udy, as i examines he esponse o unemploymen
on he con ac iona y and expansiona y episodes in ou pu . This will allow us o cap u e asymme y in
he e ec o GDP on unemploymen .
3.1. Da a
This s udy adop s a quan i a i e esea ch app oach based on qua e ly ime se ies da a sampled om he
yea 2000Q1 o 2021Q4. This sampling pe iod was ca e ully selec ed in he bid o e lec he success o
he con empo a y mone a y policy (in la ion a ge ing) since i was adop ed, a ealizing he goal o he
NDP o educing unemploymen o 6% by 2030. Table 1 depic s he a iables included in he model. The
selec ion o hese a iables, pa icula ly he con ol a iables, is unde pinned by he heo y be ween hem
COGENT ECONOMICS & FINANCE 3

and he dependen a iable (unemploymen a e). The da a was collec ed om a ious sou ces ha
appea in he able, and he expec ed signs a e nega i e o all he a iables as p oposed by he heo y.
3.2. Theo e ical model
Okun’s Law o ms a undamen al empi ical o mula ion o he ela ionship be ween GDP and unemploy-
men (Mazo odze & Siddiq, 2018). The no a ion o his heo y is ha he e exis s an indi ec co ela ion
be ween unemploymen and ou pu . The a ionale o his ela ionship s ems om he ac ha when
GDP d ops due o down u ns in economic ac i i ies, mo e people lose hei jobs, and as a esul
unemploymen inc eases. The opposi e becomes he case when he e is an expansion in economic ac i -
i ies. Okun (1962) p oposed wo speci ica ions o Okun’s Law, which a e: di e enced app oach and he
gap app oach. In his s udy he gap app oach is speci ied as i ela es unemploymen o he cyclical
componen o ou pu (ou pu gap), as shown in Equa ion (1):
U ¼c0þc1YA
−Y

þe (1)
¼2000Q1::::::::::2021Q4
In he abo e equa ion, deno es ime in qua e s, c0is he in e cep and is he coe icien o he ou -
pu gap o slope. The ou pu gap YA
−Y

is made om ac ual ou pu YA
and expec ed ou pu Y
,
since he cyclical componen o ou pu is no di ec ly obse able, he e o e he il e p oposed by
Hod ick and P esco (1997) will be applied o gene a e he ou pu gap componen . Conside he
Equa ion (1a) ha depic s he ingenious model:
U ¼X
p
j
djU þX
q
i
hiY þe (1a)
Whe e djdeno es he coe icien o dependen a iable. The i s s ep Sil apulle e al. (2004), was o
o m a dis ibu ed lags model ou o he i s equa ion, so ha unemploymen is explained by i lags
and ou pu . The second s ep was o decompose he ou pu in o posi i e and nega i e shock, as indi-
ca ed in Equa ion (1b).
U ¼X
p
j
djU þX
q
i
ðaiYþ
þbi(1b)
The Equa ion (1b) is he eason ha his s udy unde ook he NARDL model because i is unde -
pinned by he heo e ical backg ound. The e o e, he s udy adop s Sil apulle’s e al. (2004) wo k con-
ce ning he assump ion o non-linea i y o he a iables.
3.3. Empi ical model
Okun’s Law is speci ied in he NARDL se ing ollowing he speci ica ion by Shin e al. (2014)inEqua ion
(3).Equa ion (2) p esen s he long- un equa ion o he con en ional ARDL which assumes linea i y
among pa ame e s. This s udy conside s wo addi ional explana o y a iables, exchange a e and CPI, o
inco po a e o he a iables in luencing unemploymen in Sou h A ica. CPI is backed by he Philips cu e
heo y which posi s an indi ec p oposi ional co ela ion be ween in la ion and unemploymen .
Sil apulle e al. (2004) equally added ha Okun’s Law in an asymme ic o m p o ides ex ension o he
Philips cu e; on he o he hand, exchange a e ola ili y may ha e a p o ound in luence on
Table 1. Desc ip ion o a iables.
Va iables and P esen a ion Uni o measu e Sou ce Expec ed sign
Dependen a iables
Unemploymen Ra e (Un) % FRED
Independen a iables
Ou pu (Y) Rands Easy Da a Nega i e (Okun’s Law)
Exchange a e (Ex) Rand s. USD Easy Da a Nega i e
Consume p ice index (CPI) Rands IMF Nega i e (Philips cu e)
Sou ce: Au ho s Compila ion.
4 M. Z. NGUBANE ET AL.
unemploymen in he case o Sou h A ica, being an eme ging economy ha is subjec ed o ex e nal
ulne abili ies.
Un ¼a0þY þEX þCPI þe (2)
Equa ion (2) ep esen s he long- un equa ion o he con en ional ARDL, and i was u he de eloped
o he NARDL o Shin e al. (2014) o conside nonlinea i y in pa ame e s as shown by Equa ion (3).
Un ¼a0þa1Yþ
þa2Y−
þa3EXþ
þa4EX−
þa5CPIþ
þa6CPI−
þe (3)
Whe e (Un Þis he unemploymen a e as a dependen a iable, Y ,EX ,CPI a e ou pu gaps gene -
a ed by he Hod ick P esco Fil e , exchange a e and CPI espec i ely, as ep esso s. Unlike he con en-
ional ARDL in Equa ion (1), whe e linea i y is assumed in he pa ame e s, in his model he a iable o
in e es (Ou pu ) and o he ep esso s a e decomposed in o hei posi i e and nega i e pa ial sums, as
shown by Equa ion (4). Fo his s udy, Okun’s Law model will be es ima ed unde he auspices o he
NARDL. Howe e , he con en ional ARDL will be applied o obus ness check, pa icula ly in he long-
e m indings.
Xþ
¼X
i−1
DXþ
¼X
i−1
MAX DY ,DEX ,CPI
ðÞ
,X−
¼X
i−1
DX−
¼X
i−1
MIN DY ,DEX , CPI
ðÞ
(4)
Nega i e a ia ions o each eg esso a e ep esen ed by (X−
) whe eas he posi i e de ia ions o
each espec i e eg esso a e cap u ed by (Xþ
). The coin eg a ing ec o o he long- un pa ame e s o
be es ima ed, is ep esen ed by (a¼a0,a1,a2,a3,a4,a5,a6Þin Equa ion (3), and (e Þis he whi e noise
e o e m. Equa ion (4) ep esen s he sho - un e o co ec ion model (ECM).
DUn ¼aþb0Un −1þb1Yþ
−1þb2Y−
−1þb3EXþ
−1þb4EX−
−1þb5CPIþ
−1þb6CPI−
−1
þX
p
i¼1
ciDUn −1þX
q
i¼1
ðhþ
iDYþ
−1þh−
iDY−
−1þhþ
iDEXþ
−1þh−
iDEX−
−1
þhþ
iDCPIþ
−1þh−
iDCPI−
−1ÞþuECT −1þl
(6)
The sho - un lag o de s a e symbolized by p,q:The long- un coe icien s (a1¼−b1b0,
a2¼−b2b0,a3¼−b3b0,a4¼−b4b0,a5¼−b5b0,a6¼−b6b0) will ep esen he long- un
in luences o bo h nega i e and posi i e shocks in he independen a iables. On he o he hand, he
e ec o bo h nega i e and posi i e shocks in he independen a iables on unemploymen , in he
sho - un will be cap u ed by Pa
i¼1hþ
i(inc ease) and Pa
i¼1h−
i(Dec ease). Equa ion (6) is speci ied in
such a way ha i shows he asymme ic e ec o independen a iables shocks on unemploymen o
bo h he sho - un as well as he long- un. The coe icien o he e o co ec ion is deno ed by u,i is
expec ed o be nega i e and s a is ically signi ican . The null hypo hesis o he long- un asymme y
using a Wald es is bþ¼b− o assess long- un asymme y; he null hypo hesis mus be ejec ed in
a ou o he al e na i e s a ing bþ6¼ b−:Likewise o he sho - un asymme y he al e na i e hypo h-
esis o Pa
i¼1hþ
i6¼ Pa
i¼1h−
imus be accep ed. In ui i ely, he p esence o asymme y bo h in he long-
un and he sho - un implies ha he e ec s o he nega i e and posi i e shocks a e no iden ical on
unemploymen .
One o he bene i s o applying he NARDL is ha , alongside he abo e es s, we can also model he
dynamic mul iplie s, o assess how he dependen a iable (unemploymen ) adjus s o i s long- un equi-
lib ium, gi en he nega i e and posi i e de ia ions on each independen a iable as shown by Equa ion
(5).
Xþ
k¼X
k
j¼0
@Un þj
Xþ
−1
,X−
k¼X
k
j¼0
@Un þj
X−
−1
,k¼0, 1, 2, 3::::::1(7)
No e, as k !1,Mþ
k!a1and M−
k!a2:
The p ocedu e o he applica ion o he NARDL equi es ha all he se ies be ei he in eg a ed o
o de I (0) o I (1). The e should be no o de I (2). The e o e, he uni oo es will be he i s s ep in
de e mining he o de h ough which he unde lying se ies a e in eg a ed. I s a iona i y is es ablished
COGENT ECONOMICS & FINANCE 5
among he se ies, hen he Augmen ed Dickey-Fulle coin eg a ion es will be applied o es ablish i
he e is long- un coin eg a ion. Basically, Coin eg a ion will mean ha he e is a causal e ec among he
a iables in he long- un. The long- un coin eg a ion is es ed using he Pesa an e al. (1999) bound es
ha may use F-s a o es o a join hypo hesis o a -s a ha is used o es a sing hypo hesis. The F-
s a hypo hesis is as ollows:
HF
0:a¼0
ðÞ
X
q
j¼0
bi¼0
! (8)
HF
a:a6¼ 0ðÞ[
X
q
j¼0
bi6¼ 0
! (9)
Fo -s a , he null hypo hesis and al e na i e hypo hesis a e deno ed by a¼0 and a6¼ 0 espec i ely.
The c i ical alues depend on he numbe o ac o s such as he numbe o independen a iables, hei
in eg a ion o de , he numbe o sho - un coe icien s and he inclusion o he in e cep and end.
Rejec he null hypo hesis (HF
0o H
0) i F-s a o -s a is mo e ex eme han he uppe bound o c i ical
alues a 1%, 5%, and 10%.
4. Resul s and discussion
4.1. GDP and unemploymen ends
Figu e 1 shows he ends be ween he a iables o in e es (unemploymen and economic g ow h) o e
he yea s.
Economic g ow h has been upwa d ending since he yea 2001 o 2006, a he same ime he
unemploymen a e was diminishing up un il he yea 2008. This means ha unemploymen was ac ing
as a lagging indica o and had a nega i e ela ionship wi h economic g ow h. Since 2008, economic
ac i i ies dec eased d as ically owa ds 2009 and 2020. This a ibu es he e ec o he global inancial
c isis and lockdown espec i ely. In 2020, he ough is oo deep since almos all i ms we e closed while
spending was au onomous and mos people we e highly dependen on go e nmen p o isions, such as
g and elie s. Howe e , since he beginning o 2010 o 2019, he Sou h A ican economy declined and in
con as , unemploymen has been inc easing. This is con a y o he expec ed eac ion o unemploymen
o ou pu g ow h explained by Okun’s heo y.
Table 2 indica es he esul o he desc ip i e s a is ics. The able pa icula ly con ains he mean,
s anda d de ia ion, ku osis, and skewness.
The a e age alue is 25% which is e y high. I indica es ha Sou h A ican policies aimed a ampli y-
ing g ow h ha e ne e educed unemploymen ; a he i has been mo e capi al in ensi e. Fu he mo e,
he Ku osis o unemploymen is abo e 3, which indica es ha i has he highes peak among he a ia-
bles, and hence shows he o e all pic u e o high unemploymen a es in SA. All selec ed a iables show
88 obse a ions which is enough o he ime se ies model. Ha ing explo ed he na u e o he da a, he
Figu e 1. Unemploymen and economic g ow h in SA.
Sou ce: Compiled by he Au ho s using he da a ex ac ed om Wo ld Bank.
6 M. Z. NGUBANE ET AL.
s udy applied he uni oo es o assess o s a iona i y among he se ies and he esul s a e p esen ed
in Table 3.
All a iables we e ound o be non-s a iona y a le els excep GDP g ow h, bu hey we e ende ed
s a iona y a e aking hei i s di e ences. This is indica i e o he a iabili y o he a iables om
2000 o 2021 gi en he qua e ly da a used in he s udy. The e is no a iable which was s a iona y a e
he second di e ence I (2), in his ega d; he long- un coin eg a ion es can be pe o med ollowed by
he app op ia e model. This s udy elies on he bound es o coin eg a ion, which accommoda es he
cases whe e a iables ha e a mixed o de o in eg a ion, o i hey a e in eg a ed o o de one. In his
ega d, he s udy will use he non-linea au o eg essi e dis ibu ed lags (NARDL) model. This model is
lexible and has an ad an age compa ed o he adi ional ARDL model since i allows he esea che o
analyse he e ec o bo h nega i e and posi i e shocks o he explana o y a iables on he dependen
a iables.
Since s a iona i y has been es ablished, and o de h ough which he se ies a e in eg a ed i mee s
he p ocedu es o he coin eg a ion es . The s udy ca ies on wi h he coin eg a ion es , and he esul s
a e con ained in Table 4. The NARDL model allows o he a iables o be a combina ion o I (1) and
I (0). In he li e a u e, many in eg a ion es s can be used o e alua e long- un ela ionships, and hese
include he ully modi ied OLS p ocedu e o Phillips and Hansen (1990), Engle and G ange (1987)
es , and maximum likelihood es by (Johansen and Juselius 1990). These me hods howe e assume
ha all- ime se ies a iables a e in eg a ed o o de one i.e. I (1) and a e also no eliable in cases o
small sample sizes. The bounds es ing p ocedu e p oposed by Pesa an e al. (1999) is ele an because
i accommoda es he si ua ion whe e a iables a e in eg a ed in o di e en o de s. The esul s in Table 4
e eal a long- un ela ionship among he a iables when asymme y is aken in o conside a ion.
Since he F s a is ics (6.06) exceeds all he c i ical alues o he lowe and uppe bounds (See Table
4), he null hypo hesis o no long- un coin eg a ion is ejec ed. When es ima ing he long- un, and
sho - un models we op ed o an au oma ic lag selec ion which by de aul de ec s he maximum num-
be o lags compa ible wi h he employed da a se s. Lag selec ion is one o he p econdi ions unde he
Table 2. Desc ip i e s a is ics.
UN GDP EX CPI
Mean 25.71338 750581.2 9.998402 108.0481
S d. De . 2.861302 358485.6 3.274841 35.06366
Skewness 1.319765 0.138095 0.582362 0.336010
Ku osis 5.065655 1.653686 1.948039 1.789746
Ja que-Be a 41.19151 6.925760 9.031746 7.026528
P obabili y 0.000000 0.031339 0.010934 0.029799
Obse a ions 88 88 88 88
Sou ce: Es ima ion.
Table 3. Uni Roo .
Augmen ed Dickey-Fulle (ADF) Philips Pe on (PP)
Se ies I (0) I (1) O de I (0) I (1) o de
Un 0.567 −9.865 I (1) −2.097 13.015 I (1)
Y13.33 –I (0) −14.459 –I (0)
Ex −0.855 −7.074 I (1) −1.977 −6.992 1(1)
CPI 2.458 −5.852 I (1) −1.129 −6.632 I (1)
No e.  imply 1%,  5%, and 10% signi ican le els. The igu es in b acke s a e s anda d e o s.
Sou ce: Es ima ion.
Table 4. Coin eg a ion-bound es .
Func ion:
(Un ¼ ðYþ,Y−,EXþ,EX−,CPIþ,CPI−ÞF S a Lowe Bound Uppe Bound
6.06 2.123.23
2.45 3.61
3.15 4.43
No e.  implies 1%,  5%, and 10% signi ican le els. The igu es in b acke s a e s anda d e o s.
Sou ce: Es ima ion.
COGENT ECONOMICS & FINANCE 7
Appendix B
Appendix C
Un ¼0:30 Un −4−0:87 GDPGAP þ0:56 GDPGAP −3−0:11 CPI þ2:25 EX −3:05 EX −2−0:0062EX
þ0:0059TREND −0:615ECT −1
Func ion:
(Un ¼ ðUn, CPI, EX, GDP GAPÞF S a Lowe Bound Uppe Bound
4.5488 3.474.45
4.01 5.07
5.17 6.36
Diagnos ic Tes s F-s a is ic P- alue
He e oskedas ici y Tes 1.5638 0.0928
B eusch-God ey Se ial Co ela ion LM Tes : 0.9016 0.4114
Ramsey RESET Tes 2.3441 0.1310
Ja que-Be a 0.012261 0.9938
14 M. Z. NGUBANE ET AL.