Okun’s Law in ASEAN countries: a Panel Structural Equation Modeling approach to growth–unemployment dynamics

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This study re-examines Okun’s Law by investigating the relationships among economic growth, inflation, foreign direct investment (FDI), and unemployment across ASEAN. Using a balanced panel of ten ASEAN countries from 2000 to 2024, the study employs Panel Structural Equation Modeling with the robust Satorra–Bentler estimator. Robust Least Squares and Two-Stage Least Squares are used as robustness checks to address heteroskedasticity, outliers, and potential endogeneity. Data are obtained from the World Bank’s World Development Indicators. The findings support the regional validity of Okun’s Law, showing that economic growth is significantly associated with lower unemployment, with consistent results across robustness estimations. FDI is positively associated with unemployment, suggesting that greater investment inflows do not necessarily translate into improved employment outcomes. Inflation exhibits a small but statistically significant negative relationship with unemployment. These findings indicate that growth-oriented policies alone may be insufficient to substantially reduce unemployment across ASEAN. Policymakers should therefore complement economic expansion with labor-market reforms, human capital development, and strategies that enhance the employment-generating potential of FDI. The findings represent average regional relationships and should be interpreted in light of ASEAN’s economic heterogeneity.