Impact of Unemployment and Inflation on the Economy of Nigeria
Chapter One
Objectives of the study
The objectives of this study will be divided into two sections: the main purpose and the sub-objectives
Main objective
The study’s main objective is to examine the effect of unemployment and inflation on economic growth in Nigeria.
Specific objectives
- To examine the trend of inflation in Nigeria.
- To examine the trend of unemployment in Nigeria
- To estimate the relationship between economic growth, unemployment and inflation
CHAPTER ONE
LITERATURE REVIEW
Conceptual Review
The concept of Economic Growth
According to Balami (2006) economic growth which is always proxied by GDP often conceptualized as increase in output of an economy’s capacity to produce goods and services needed to improve the welfare of the country’s citizens. Growth is seen as a steady process which involves raising the level of output of goods and services in the economy. Growth is meaningful when the rate of growth is much higher than population growth because it has to lead to improvement in human welfare. Therefore, growth is seen as a steady process of increasing the productive capacity of the economy and hence, of increasing national income, being characterized by higher rates of increase of per capita output and total factor productivity, especially labour productivity. Hemming (1991) observed growth is influenced by the composition of expenditure, since certain types of spending have even apparently less productive expenditure. Security, for example provides social and political stability that is necessary for growth, and reducing such spending could be counter-productive. The main conclusions that can, therefore, be derived from these studies are that, public expenditure contributes to growth, and that composition rather than the level which is important. According to Balami(2006) there are three different measurements for economic growth namely: nominal measurement of growth, real output growth rate as a measure of economic growth and growth measured in per capita values.
The concept of unemployment
According to Balami (2006) unemployment is conceptualised as a situation where in a worker is or workers are involuntarily out of work. This means that workers are willing and able to work but cannot find any work. Unemployment has been defined by the classical economists as the excess supply of labour over the demand for labour which is cause by adjustment in real wage. The Classical or real wage unemployment occurs when real wages for job are set above the market-clearing level, causing number of job-seekers to exceed the number of vacancies. Unemployment was defined by the International Labour Organization (2001) as a state of joblessness which occurs when people are without jobs and they have actively sought work within the past four weeks. The unemployment is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by individuals currently in the labour force. In a 2011, Business Week Reported that more than two hundred million (200) people globally are out of work, a record high, as almost two-third of advanced economies and half of developing economies are experiencing a slowdown in employment growth. According to Jhingan (2001). Unemployment can be conceived as the number of people who are unemployed in an economy, often given as a percentage of the labour force.
The concept of inflation
According to Balami (2006), inflation is a situation of a rising general price level of broad spectrum of goods and services over a long period of time. It is measured as the rate of increase in the general price level over a specific period of time. To the neo-classical and their followers at the University of Chicago, inflation is fundamentally a monetary phenomenon. In the words of Friedman, inflation is always and everywhere a monetary phenomenon and can be produced only by a more rapid increase in the quantity of money than output.” According Hicks (1951) inflation is a continuous rise in general price level.” Dernberg, & McDougal (1976) are more explicit when they wrote that „„the term inflation usually refers to a continuing rise in prices as measured by an index such as the consumer price index (CPI) or by implicit price deflator for gross national product.” Keynes and his followers emphasise the increase in aggregate demand as the source of demand-pull inflation. Inflation can be conceptualized as persistence raise in the general price level of broad spectrum of goods and services over a long period as a result of cost- push.
CHAPTER THREE
DATA AND METHODS
Introduction
This paper used causal research design to capture the impact of inflation and unemployment on economic growth in Nigeria. Causal research design is a type in which there is a dependent variable and independent variables, whereby the dependent variable responses to changes in the independent variables.
Date Sources and Variables Measurement
This paper used Annual data from 1970 to 2016. The data used in this study are mainly secondary data and sourced from CBN bulletins, NBS, Atan (2013) and Abdullahi and Abdulsalam (2016). Real gross domestic product (GDP): This refers to national GDP that has been adjusted for inflation or deflation, that is, GDP divided by the price deflator (price of the base year). Real GDP is used as a proxy for economic growth, percentage change in the consumer price index is used as inflation rate and unemployment (Une) as a percentage of unemployment to working population. This paper used the old formula where people working less than forty hours in a week are considered unemployed and forex as the official foreign exchange rate of Naira to US dollar.
CHAPTER FOUR
RESULTS AND DISCUSSION
Table 4.1: Augmented Dickey-fuller min-t
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
This study analysed the impact of inflation and unemployment on economic growth in Nigeria from 1970 to 2016. The unit root properties of the series were tested using the Augmented Dickey fuller test in the present of structural break. The unit root result shows that inflation and the foreign exchange rate are stationary at level while unemployment and GDP were stationary at first difference. The study employed Auto Regressive Distributive Lag (ARDL) model and Error Correction Mechanism (ECM) to test long and short run relationship among inflation, unemployment and economic growth. The long run result shows that inflation has a positive and insignificant impact on economic growth while the unemployment rate has a negative and an insignificant impact. The foreign exchange rate has a positive and significant impact on economic growth in the long run. In the short run, inflation has no impact on it. The unemployment rate has a positive and significant impact on economic growth but at lag, the impact of the unemployment rate on economic growth became negative and statistically insignificant. Foreign exchange shows a negative and statistically significant impact on economic growth in the short run. This study recommendsthe harmonization of monetary and fiscal policy, vocational education and low or the absence of interest on loans to young graduates, the diversification of the economy and the provision of key economic infrastructure.
The government should also embark on creation of more job opportunities to the people through construction and setting up more industries in order to mobilise and create more jobs for the people.
The government should also sensitise the people through holding seminars and different classes for the people about entrepreneurship and how to become risk takers in order to reduce the rate of unemployment in the country. Furthermore, the government and policy makers can also focus on providing financial support to the youth thus creating more jobs.
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