Empirical Investigation of the Okun’s Law Relationship Between GDP Growth and Unemployment in Nigeria Using State-Level Panel Data

Okun's Law posits an inverse relationship between output growth and unemployment, but its empirical validity and coefficient magnitude at the state level in Nigeria, where labour market informality and structural heterogeneity are high, have not been rigorously examined using panel data methods. This study empirically investigates the Okun's Law relationship between GDP growth and unemployment in Nigeria using state-level annual panel data for 36 states and the FCT from 2015 to 2022. State-level real GDP growth rates from the NBS state accounts and unemployment rates from the NBS Labour Force Survey were used. Pooled OLS, fixed effects, and random effects panel estimators were applied and compared using Hausman tests. Cross-sectional dependence was tested by Pesaran's CD test and addressed by Driscoll-Kraay standard errors. Dynamic panel estimation using Arellano-Bond GMM addressed potential endogeneity. Fixed effects Hausman test (chi-square = 24.3, p < 0.001) favoured fixed over random effects. Okun's coefficient from fixed effects estimation was -0.31 (p = 0.003), substantially smaller than the -0.4 to -0.5 range typical in advanced economies, reflecting Nigeria's large informal employment buffer. Heterogeneous coefficient estimation showed significantly stronger Okun relationships in South West states (mean -0.49) than North West states (mean -0.18). GMM estimates confirmed the negative relationship with smaller magnitude. The study contributes Nigeria-specific panel evidence on Okun's Law heterogeneity and recommends regionally differentiated labour market policies. Keywords: Okun's Law, unemployment, panel data, GDP growth, Nigerian labour market