Interrelationships among unemployment, inflation and economic growth in Nigeria

Abstract

The determinants of, and interrelationships among unemployment, inflation and economic growth in Nigeria in the period 1981-2013 were investigated. Two  appropriate methodologies – simultaneous equations analysis involving the  two-stage least squares (2SLS) estimation technique, and vector autoregression (VAR) analysis are used for the investigations. The analyses reveal inter alia that (i) the variables are indeed interrelated, (ii) a long run (equilibrium) relationship exists among them (iii) the proposition of the original Phillips curve is validated (iv) inflation contributed to the growth of per capita income in the period covered by the study (v) the growth of Nigeria’s economy could not abate the unemployment problem, rather unemployment grew with economic growth (vi) broad money growth has been inflationary (vii) foreign direct investment (FDI) helped reduce unemployment within the sample period (viii) trade openness positively affects economic growth in Nigeria. The recommendations of the paper include greater but cautious integration of Nigeria’s economy with the global market; tight money policy to control broad money growth and hence, inflation; infrastructural development, improvement in security and favourable tax regimes to enhance the attractiveness of the economy to FDI.

Keywords: Unemployment, inflation, economic growth