The Impact of Economic Growth on Unemployment and Inflation An Applied Study on the Libyan Economy

Abstract

This study aims to analyze the nature of the relationship between unemployment, inflation, and economic growth in the Libyan economy during the period (1962–2012), by integrating the Phillips Curve and Okun’s Law within a unified econometric model. The study relies on annual data issued by official Libyan institutions and adopts both the descriptive-analytical and quantitative approaches. In addition, modern econometric techniques were applied, including the unit root test and the Johansen cointegration test.
The results indicate the existence of a long-run inverse relationship between the unemployment rate and the inflation rate, consistent with the Phillips Curve. The findings also confirm an inverse relationship between non-oil economic growth and changes in the unemployment rate in accordance with Okun’s Law. Furthermore, the study reveals that the impact of economic growth on inflation occurs indirectly through its effect on unemployment. The results suggest that the Libyan economy suffers from structural imbalances that limit the capacity of economic growth to generate sufficient employment opportunities, highlighting the need to adopt development policies aimed at diversifying the productive base and improving labor market efficiency.