AN ECONOMETRICS INVESTIGATION INTO THE IMPACT OF UNEMPLOYMENT ON ECONOMIC GROWTH IN NIGERIA (1981-2015)

Abstract

This study investigated the impact of unemployment on economic growth in Nigeria (1981- 2015) adopting the Ordinary Least Square technique (OLS), Augmented Dickey-Fuller test, Co-integration, Vector Error Correction Mechanism (VECM) and the Granger Causality tests. The regression results revealed that unemployment and inflation have negative and insignificant impact on economic growth, while government expenditure has a significant positive impact on economic growth in Nigeria. The computed R-squared implied that about 95% of the systematic variation in economic growth is explained by the unemployment, government expenditure and inflation and indicated that the model has a good fit. The result from the Johansen Co-Integration test revealed a long-run co-movement between the dependent variable, economic growth and the three independent variables, unemployment, government expenditure and inflation. The vector error correction coefficient for LNRGDP meets the apriori expectation of a negatively singed coefficient and this implied that 3.7976% of the errors are corrected in the long-run and as such there is a convergence. Granger Pairwise causality test result revealed that government expenditure granger causes real GDP at 5% level of significance, while none of the other variables granger caused the other. Hence, the study recommended that the activities of the government in promoting economic growth in the country should be geared towards promoting employment for the people, particularly in areas of agriculture, small and medium scale businesses and also, government expenditure in the economy should be increased as it brings about economic growth and would result in increased employment rate in the long-run.