Regional evidence on Okun's Law in Czech Republic and Slovakia

We present regional evidence on Okun's Law using original data for two emerging countries, namely the Czech Republic and Slovakia. We unveil the presence of important regional heterogeneities, as in many Czech and Slovak regions Okun's Law is not significant. Among the drivers of these regional differences, we outline the level of unemployment and output, domestic and foreign investments, and R&D and infrastructure spending. Subsequently, we show that unemployment, output, and domestic investment are equally related to regional magnitude non-linearities, when it comes to Czech and Slovak regions in which Okun's Law is at work. We draw upon these rich results to discuss policies that could be implemented to avoid underemployment traps in the Czech and Slovak regions.