Hysteresis in Regional Unemployment Rates in Turkey

It is important for policy-makers to understand the nature of unemployment, particularly in the regional level. As a developing country, Turkey suffers from severe unemployment, as well as major regional discrepancies, even in the periods of high-level economic growth. In this study, we analyze a possible hysteresis effect in regional unemployment rates in Turkey from 2004 to 2011. We apply heterogeneous or homogenous Panel-based Unit Root (PUR) tests that they can be arranged in groups by cross-section independence or cross-section dependence. Results of the PUR tests show that there is no mean-reversion in regional unemployment rates and natural-rate of unemployment hypothesis is strongly rejected. Thus, empirical results provide significant support for the existence of the hysteresis hypothesis in regional unemployment rates in Turkey.